The Reagan Years: An Assessment; CUTTING RED TAPE

On the hustings in 1980, Ronald Reagan struck a responsive chord when he promised to ''get government off the backs of the people.'' Across the country the American people - from ordinary taxpayers burdened by growing taxes to businesses, factories, and colleges snarled in federal red tape - seemed to be in the mood for an assault on ''big government.''

Three years later not even White House officials claim that the Reagan administration has made much of a dent in shifting the balance of power from the federal government to the rest of society. The broad facts are:

* Overall federal spending has been rising. It was 23 percent of the gross national product (GNP), the value of the nation's output of goods and services, in fiscal 1981. In fiscal '83, federal spending grew to 25 percent of GNP.

* The welfare state is basically intact.

* Progress has been made in freeing up once-protected industries, such as the airlines, trucking, and railroads. But regulatory reform in the area of health, safety, and environment has slowed.

* The administration has sharply reduced federal involvement in state and local affairs, forcing states and communities to look to their own resources. But the dollar amount of federal aid to states remains huge.

* Federal employment has been cut only slightly.

While there is general agreement that President Reagan has not led anything approximating a ''revolution'' in reducing the size and role of government, he has forced a dialogue on the subject and helped change attitudes.

''Reagan has signaled to states that they cannot count on the feds for more aid,'' says John Shannon, assistant director of the Advisory Commission on Intergovernmental Relations. ''He has fostered a 'do it yourself' climate, and that is healthy.''

''There has been only a moderate change,'' says Stephen Wayne, a presidential scholar at George Washington University. ''Reagan is still in the mainstream of big government. In fact, he has actually centralized power in order to impose spending cuts and deregulation.''

''The pendulum has swung hardly at all,'' says historian Robert Nisbet of the American Enterprise Institute.

Another specialist, Richard P. Nathan of Princeton University, remarks: ''Reagan has changed the rhetoric and dynamics of policymaking. Now the legislative battles are not over how much to increase spending but simply over how much to cut.''

To be sure, Mr. Reagan put a heavy ax to federal spending. But in effect, he shifted federal expenditures from nondefense sectors to the military. Sharp cuts were made in civilian programs, mainly in the social-welfare area. But the accelerated buildup of the military forces meant unprecedented peacetime increases in defense spending: rising from $160 billion in fiscal 1981, or 24 percent of the total federal budget, to an estimated $235 billion in fiscal 1984 , or 28 percent of the budget.

Even in civilian areas the administration managed merely to reduce the rate of spending, but not the absolute amounts in real terms. Spending on means-tested (i.e., so-called welfare) programs, for instance, rose from $55 billion in fiscal 1981 to an estimated $61 billion for fiscal 1984. It was in fact preservation of the New Deal safety net that enabled the President to ride out the recession without social disruption. Meanwhile, other entitlements, including social security, medicare, veterans' benefits - those payments that largely benefit the middle class - have so far escaped serious pruning: They shot up from $250 billion in 1981 to $318 for '84.

''Reagan has not been able to be as conservative as he liked because Congress would not let him cut,'' says presidential scholar Betty Glad of the University of Illinois. ''He's not been able to do much about turning the clock back on the welfare state.''

Reagan administration critics quickly point out that, while the supply-side Reaganauts zealously attacked federal subsidy of America's poor, they did not apply the same standard of ''spending for the truly needy'' to other sectors of the economy. Farm subsidies, for instance, have skyrocketed under Reagan. They rose from $4 billion in fiscal 1981 to $21 billion in 1983 because of the payment-in-kind program.

Equally significant to analysts has been the administration's reluctance to grapple with basic tax reform. Reagan's dramatic tax cuts changed the marginal rates for a population of taxpayers that was constantly being pushed into higher income-tax brackets because of inflation. But, while most economists believe some tax relief was necessary, the greatest benefits went to the rich. The antiquated, complex structure of tax subsidies or ''tax expenditures'' - the amounts Washington does not collect because of exemptions and deductions for all kinds of spending - remains unchanged. These are estimated to reduce revenue by about $160 billion a year.

As they confront the colossal budget deficits, in fact, Reagan's aides are beginning to consider some fundamental reforms, such as eliminating tax deductions for mortgage interest on second homes. This would require a monumental political breakthrough, however. Although Americans say they want more cost-minded government, they do not want to give up their own subsidies and benefits. The administration, for its part, has adamantly refused to slow the dramatic rate of increase in military spending - a move even conservative Republicans advocate in order to reduce the deficits.

On the regulatory front, the administration has chalked up some limited progress. It put into effect a comprehensive program of regulatory review, including a requirement for cost-benefit analyses. As a result, many onerous regulations have been modified or eliminated. The administration estimates that a review of about 120 sets of regulations will save $116 billion over 10 years.

''The process is now better and fairer,'' says C. Boyden Gray, who was counsel for Vice-President George Bush's Task Force on Regulatory Relief. ''There was a sense of frustration - from businessmen, universities, cities - of being besieged by government regulations and pleading for relief. One no longer senses the same urgency and panic about the intrusiveness of government.''

The administration has also accelerated the deregulation efforts of Presidents Ford and Carter, completing deregulation of the airlines and partial deregulation of trucking and rails. Banking deregulation, which took the straitjacket off the thrift institutions, is regarded by the administration as its most significant reform.

''That has resulted in more than $3 billion a year to consumers and created a lot of healthy competition in the service industry,'' Mr. Gray says.

However, as a result of pressures from Congress, consumer groups, the federal bureacracy, and even business groups that have already invested in complying with federal rules, the deregulation effort seems to have come to a halt. The regulatory task force was disbanded last August. Efforts to dismantle the Departments of Energy and Education have been abandoned. Air-pollution regulations remain largely in place, and with the Environmental Protection Agency just reemerging from a period of political turmoil there is little enthusiasm for pushing basic changes. The replacement of James G. Watt, the controversial secretary of the interior, has added to the caution on the environmental front.

Reagan, in short, has run into the political backlash that occurs whenever someone's ox is being gored. Every group wants less government or more efficient government but not at the expense of its own pet program.

''Reagan has removed a lot of petty annoyances for business and dropped its adversary stance,'' says Hank Cox, associate director for regulatory affairs of the US Chamber of Commerce. ''There is more politeness now and a feeling among business that government is on our side. But he has only put a lid on. He hasn't done anything that will last beyond his time in office.''

Murray L. Weidenbaum, former chairman of Reagan's Council of Economic Advisers, gives the administration only a ''C'' on regulatory reform. Not only has it not faced up to key statutory problems and undermined public confidence in environmental controls, says Mr. Weidenbaum. By embracing so many protectionist actions - cajoling the Japanese to impose limits on car exports to the United States and placing limits on steel and meat imports - the administration has increased government involvement in business decisionmaking. The result has been a restriction of foreign trade.

''It is difficult to avoid the conclusion that the administration has taken at least as many steps backward as forward,'' writes Weidenbaum, now director of the Center for the Study of American Business at Washington University in St. Louis.

Where the Reagan administration is given credit for turning the tide of federal involvement is in the relationship between the central government and the states and localities. Mr. Shannon notes that a decline in federal flows to the states actually began under the Carter administration but that ''Reagan hurried history along.'' Where federal aid to the states accounted for 17.3 percent of the federal budget in 1978, the peak year, it now is down to 11.8 percent. There used to be about 550 programs funded in full or in part by the federal government. There now are some 400.

''Reagan is the first president since Roosevelt to turn things around,'' Mr. Shannon says. ''The first thing he did was to stop the wild proliferation of new aid programs. He also consolidated a number of programs into block grants. The states used to count on the federal cavalry to come charging over the hill. So now we have 'bootstrap federalism' - the states are forced to rely on themselves.''

Put another way, whereas the states used to depend on the federal government for about 26 percent of their budgets, that figure has declined to 20 percent.

But such figures conceal the still-high magnitude of federal aid, which includes revenue sharing, block grants, medicaid, and education and other programs. In 1981 such aid amounted to $94 billion. It fell to $86 billion in 1982, still the second highest transfer in history. The decline was only $8 billion and hardly created a ripple. It should also be noted that state and local budgets have grown because of the recession and the need to raise more revenue for increased state aid. So the slowdown of federal assistance is not the only reason for the changed complexion of state budgets.

Meanwhile, Reagan's ''New Federalism'' - a plan for turning back medicaid and welfare programs to the states - has not gotten off the ground. In fact federal medicaid payments are increasing, and with the new 5 percent federal tax on gasoline, Washington is also getting involved in new bridge and highway programs.

''But there has been a psychological change,'' says Mr. Shannon. ''In the old days the federal government would have increased aid during a recession. Now the states are having to raise money and the message from Washington is, 'Don't count on us.' So there is an 'austerity federalism,' a trend which is being fostered by governors and mayors across the nation as they watch the federal deficits soar.''

Public employment is another measure of the size of government, and here there also appears to be some change, though not on the national level. The number of civilian employees in the federal government has remained fairly constant for some 10 years at about 2.8 million, declining only slightly in the past two years. The huge post-World War II growth came in state and local governments as they scrambled to carry out programs legislated in Washington.

But that trend is beginning to reverse itself. The number of state and local employees per 10,000 population stood at 256 in 1952 and rose to an all-time high of 497 in 1978. It began declining in 1980 and totaled 467 in 1982 - a drop attributed by Mr. Shannon to several factors, including the reduction in federal aid, the taxpayer revolt, the recession, and, not least of all, the decline in the number of teachers at all levels of education once the post-World War II baby boom was over.

While the size of government has not declined appreciably, Reagan is credited as having had a signficant impact in both the public and private labor sectors because of his dismissal of the air traffic controllers. ''He showed he would not allow government to become hostage to its civil servants,'' says one analyst.

On the ''big government'' front, however, social welfare is the area that has stirred the greatest controversy. For 40 years or more the nation operated on the basis that government should help pull up the bottom rungs of society through income-maintenance and social programs. Several presidents, including Richard Nixon and Jimmy Carter, tried to reform the welfare system, with little success.

But Reagan has gone further. He came into office with a clear philosophy that welfare is a debilitating system and that government, while it has an obligation to care for the ''truly needy,'' should seek to wean welfare recipients away from welfare and into jobs. Nor does government have the task of narrowing the gap between the rich and the poor. In Reagan's view, a robust economy is the route to improvement for everyone.

''It is not in our tradition to assume that government should level everyone, '' comments a high administration official. ''And it's not a proper goal of policy to equalize income. There should be incentives to get ahead and opportunities to work out of poverty.''

The administration's basic approach, therefore, has been a series of reforms aimed at targeting welfare benefits on those unable or unwilling to work.

Democrats and even some moderate Republicans criticize the President for his ideological views and the often harsh results of his cutbacks in social spending.

But many independent observers believe that Reagan correctly read the general American perception that welfare spending had reached an excess and that there was not enough concern for efficiency and frugality.

Perhaps one indication of this is that the federal government's social spending cuts, which fell heaviest on poor people, were not supplanted at the state level. In a study of 14 states and 40 local governments, Princeton University's Urban and Regional Research Center found that they ratified the Reagan cuts.

''The predominant pattern was a decline in benefits and funding for social projects,'' says Mr. Nathan, director of the center. ''The cuts hit when recession was its worst and they did nothing.''

As a result, says Nathan, the size of the public sector vis-a-vis the private sector is declining. Moreover, he says he finds that while welfare dependency is a severe problem, most welfare recipients accept the idea of ''workfare'' - doing some work while receiving benefits.

While all the research data are not in yet, other studies suggest that ''workfare'' is having a deterrent effect. That is, when told they will have to work, a large proportion of welfare recipients - as high as 20 percent - find other ways of supporting themselves rather than go into a ''welfare job.'' And while some states find that many working poor, faced with losing their benefits because they are earning above the permitted income ceiling, choose to quit their jobs and go entirely on welfare, the vast majority do not become full-time welfare recipients.

It is not denied, however, that many working poor are suffering severe hardship because of cuts in welfare. Moreover, because some working poor do elect to go wholly on welfare, it is questionable whether the government ends up with a net saving.

''Welfare is a complex question,'' says Mr. Nathan, ''but Reagan is changing the climate. And he may be a lot more successful in doing something about it than we have been talking about for 40 years.''

Next: Reagan's foreign policy agenda

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