Reagan's '85 budget: optimism plus realism

There will be no zigzagging in the Oval Office. As he moves into the election year, President Reagan has decided to stick by his basic budget policies - higher defense spending, cuts in social programs, and no major tax increases. He thus is postponing until 1985 the hard economic decisions that many economists say will have to be made to bring down the gargantuan budget deficit and ensure the nation's long-term economic health.

As long as the economic recovery continues, political analysts say, Mr. Reagan is unwilling to disturb the policies that he says have put the country back on the road to sturdy growth. Above all, he does not wish to risk reelection by shifting course or proposing changes that would be unpopular among his middle-class supporters.

''From the Carter experience, Reagan knows all about yo-yo-ing and the effect on the electorate,'' says budget expert Allen Schick of the University of Maryland. ''He knows that changing economic assumptions is not good politics. So he has stuck to policies that matter to him.''

Four years ago, President Carter submitted a budget in January and two months later frantically negotiated a new budget with Congress because of concern about zooming interest rates. This contributed to public perception of uncertainty in the White House. ''Reagan has great skill at creating a sense of seamlessness and a smooth progression of things,'' Mr. Schick comments. ''Even where there is 'give' in the budget, he conveys that the trend is in the 'right' direction.''

This does not mean the President is not prepared for a fundamental assault on budget deficits if he wins a second term. The administration concedes that the problem has to be addressed early in 1985. It also acknowledges that the only way to reduce the deficit appreciably (assuming Reagan will not curb his defense buildup) is to raise revenue and go after entitlements - medicare, social security, and other programs which benefit the vast middle class as well as the poor and which were left virtually untouched in the first-term budget scale-backs.

''From the standpoint of spending,'' a high White House official says, ''there are reductions that can be made in entitlements. You have to look at the issue in terms of restructuring programs. They have built up like Topsy.''

The President echoed this view in a recent Newsweek interview. Asked what would be different in a second term, Mr. Reagan alluded to the comprehensive welfare reforms he carried out in California in his second term as governor. He never made them an issue in his reelection campaign, he said, but ''immediately after the election, we went to work on them, and we achieved them.''

Would he do the same with federal entitlements?

''I believe there have to be some structural changes in our government. . . . And this is part of the getting at the deficit problem over the long haul that I look forward to doing,'' he told Newsweek.

For the moment, the President apparently does not see any major political liability in the $180 billion deficit projected for fiscal '85. Polls show many Americans disapproving of how he has handled the deficit. But that negative rating seems overshadowed by the high approval ratings for how the President in general is doing his job and by a sense that the economy is improving.

Public satisfaction over a resurgent economy is the main reason for Reagan's strength in the polls. A recent Time/CBS poll shows that foreign policy is more a concern than economic issues, and, among the latter, unemployment is more a concern than the budget deficit. Deficits, political analysts say, are an abstract issue for most.

Moreover, it is a question whether the Democrats can credibly exploit the issue: They themselves have a record of creating big deficits, political analysts say. President Reagan seems to have skillfully taken the high ground of bipartisanship, offering to negotiate with Congress a way to cut the deficit by a modest $100 billion over three years. The proposed budget calls for deficit reductions of $73.6 billion over three years. Congress would thus have to produce another $26.4 billion in reductions.

Sensitive to charges that his policies have been unfair to the poor, the President in his new budget proposes only modest further reductions in spending on welfare, low-income housing, and child nutrition. While Democrats are expected to assail these cuts as more evidence of ''unfairness,'' it is not clear what this will cost the President in political terms. With most Americans enjoying better times and many not liking welfare programs to begin with, analysts say, the fairness issue may not be as harmful to Reagan as might have been expected.

The President himself seems oblivious to any major political risk in the issue. In an ABC television interview this week he denied that his economic program was hurting the poor, especially the homeless. Even in the best of times , he said on the program ''Good Morning America,'' there were people ''who are sleeping on the grates, the homeless who are homeless, you might say, by choice.''

Such statements could be damaging, however. ''They seem to show a certain callousness that people do respond to,'' says presidential scholar Stephen Wayne of George Washington University. ''Reagan is a polarizing President, and this confirms what many Democrats think about Republican presidents. It will make defections from the Democrats harder.''

Some budget analysts believe that the politicians are not doing anything about the deficit now because there is no national consensus that the United States is at a critical point. Economists say the deficits must be reduced because inflation will increase again, because the recovery may be slowed or aborted, and because the deficits are ''crowding out'' or stifling private investment.

''There is not enough tangible evidence that we have to make hard choices now ,'' says Princeton University scholar Richard Nathan. ''It isn't that the politicians won't face the music - the music has not reached a crescendo. If in the next few months, even before the election, everyone agrees that the economy is hurting they'll form another 'Greenspan Commission' and do something on the surtax side.''

Most economists disagree that there is an absence of urgency. Reagan, in any case, appears determined to trust his own instincts that a continuing recovery will enable him to delay politically sensitive budget decisions.