A Stillborn Budget

Reagan's FY83 budget was met with a torrent of criticism, tempered mainly by the desire of the president's allies to leave some room for an orderly retreat.^[3]

OMB claimed that "current policy with adequate defense" would produce deficits of $147.3 billion in FY83 and $167 billion in FY84. "Adequate defense" was the Weinberger/Stockman deal that Stockman had failed to repeal: real growth of 12.7 percent in 1982, another 13.2 percent increase in 1983 and, over the entire 1981–1987 rebuilding period, an 8.3 percent annual rate of increase. Defense would rise from 24.3 percent of federal outlays in 1981 to 37.2 percent by 1987.^[4]

Entitlement savings would "restore the focus of social welfare programs on the people who need them most and … prevent overcompensation of benefits." User fees would be increased for activities that "provide direct services above and beyond those that accrue to the general public." Discretionary and other programs ranged from housing to Amtrak to job training. Tax revisions were supposed to "eliminate unintended tax benefits and remove obsolete incentives." Finally, management initiatives constituted a potpourri of savings, from will-o-the-wisp reductions in "waste, fraud, and abuse" to changes in tax collection and federal pay.^[5] The savings projected from all these means are summarized in Table 6.

The administration was proposing social program cuts of more than $58 billion by FY84. AFDC and food stamps would be cut by nearly 20 percent; the employment programs remaining under Comprehensive Employment and Training Act (CETA) would be cut in half. Amtrak, Mass Transit, and Elementary and Secondary Education assistance were all to be reduced by 17 to 20 percent. Not all reductions were targeted on the poor; Amtrak was a middle-class program (poor people ride buses); federal retirees are middle-class; and medicare savings were expected to come from hospitals and doctors as well as patients. But the overall effect of these changes did mean considerably reduced benefits for low-income groups.

Stockman's book-cooking occurred in the category called management initiatives, for example, the restraint of federal pay raises to 5 percent—a

level that few if any policy makers had expected to be exceeded, even if the formal comparability process projected larger increases. Estimates of revenues from accelerated leasing of offshore oil sites were even more dubious. Between them, pay and oil lease "savings" totaled $31 billion over three years. Increased enforcement by the IRS was supposed to yield nearly $7 billion.^[6]

The package was not, however, purely spending cuts and mirrors. More than 20 percent, including the highly controversial management initiative of withholding (just like on wages) a portion of dividend and interest income, consisted of revenue increases. These proposals—including a new minimum tax on corporations and changes in some accounting procedures—were, the CBO concluded, "heavily weighted toward increases in corporation income taxes, which account for about three-quarters of the net tax increases proposed for the 1983–85 period."^[7]

Professionals in the Treasury Office of Tax Policy had begun an effort to repair some of what they considered mistakes—simply bad policy—in ERTA. They were less concerned about deficits than about anomalies such as negative taxation of corporations; on that basis the secretary of the Treasury, otherwise an opponent of tax hikes, agreed with them.

One would hardly have guessed it from the balance in the president's budget alone, but the fact that the Reagan administration, of all things, was attacking business represented a change in the political balance. Business suddenly was on the defensive; consequently its components began trying to stick each other with the burden instead of uniting to fight all change. How does business fight a supposedly probusiness administration?

The reactions of Republican leaders made it evident that the new plan would last no longer than Jimmy Carter's January 1980 draft. House Minority Leader Michel commented, "Most of the members feel that they went along with a precipitous increase in defense spending last year, and that you can't have that two years in a row. With the kind of deficits we're looking at here, and the need to cut expenditures, you just can't leave defense out of there." Iowa's Republican Senator Charles Grassley declared, "I have spent two weeks touring twenty-seven counties in western Iowa, speaking in twenty-seven courthouses, and there wasn't a meeting where concern with the rapid escalation of defense spending didn't come up."^[8] "I don't think anybody likes the budget," said Wyoming Senator Malcolm Wallop.^[9]

Economists who previously had gone along with Reagan joined the chorus of critics. Former CEA chairman Paul McCracken declared that "there is a hard-core part of the deficit that's going to have to be covered by some additional revenue."^[10] And Martin Feldstein, soon to be Reagan's own CEA chairman, thought that "the Administration has put itself in an impossible position…. We may just have a long, flat bottom with very little growth."^[11] That he would turn out to be incorrect did not mean he would be uncertain about being correct.

Trying to rally grassroots support for his budget, the president declared that he had a plan but his opponents did not. "To the paid political complainers," he proclaimed in Indianapolis, "let me say as politely as I can, 'Put up or shut up.'"^[12] So they did. Most significantly, Senator Hollings proposed to eliminate the July 1982 tax cut, reduce taxes by only 5 percent in 1983, freeze all domestic (including social security) spending at FY82 levels, and increase defense by only 3 percent in real dollars annually. Howard Baker immediately praised Hollings's plan. Republicans such as Slade Gorton of Washington, Rudy Boschwitz of Minnesota, and Domenici began drafting possible compromises; Hollings could be used as a lever to move Reagan.^[13]

Iowa's Representative Jim Leach, a leading gypsy moth, explained:

The President's budget was dead in its tracks the day it was delivered. Conservatives rejected it on the ground that the deficit was too large, and the liberals on the ground that its priorities were askew.

As a moderate, I agree with both. The feeling here is one of lost confidence. No one elected Ronald Reagan to preside over a recession.^[14]