A (White) House Divided: Reagan

As the administration prepared its election year budget, Martin Feldstein became the symbol of economic responsibility suppressed by (as most commentators saw it) political expediency. When the president's advisers met on December 1, 1983, to discuss the upcoming budget, Press Secretary Larry Speakes "launched a brutal, attack against the Harvard professor turned economic adviser."^[5] Feldstein, who had had to assert his right to participate, got the central message; the White House staff was displeased at his electorally embarrassing talk about the deficit. "I completely support the president's program," he told reporters; and then, in a speech that night, he declared that there was no way the government could grow its way out of deficits. With that kind of support, Reagan needed no opposition. Feldstein's goal and loyalties—growth without inflation—were the same as Reagan's, so he decided he was on the same side. It was a disagreement of means, not ends—but policies are means.

Feldstein very loudly, Stockman less so, and Commerce Secretary Malcolm Baldridge quietly continued to work to include some version of the 1983 contingency tax plan in the FY84 budget package.^[6] On December 12 an unenthusiastic Donald Regan told the Washington Press Club that the administration would propose such a tax increase, contingent on prior spending cuts.^[7] Sometime between then and mid-January 1984, however, Secretary Regan defeated the tax plan. President Reagan had never liked the contingency tax; when it came time for his decision, the president, in Stockman's words, "came down on us like a ton of bricks with a twenty-minute lecture on economic history and theory." In spite of, or perhaps because of, all the publicity about feuds within the administration, the president was making the major budget decisions.

As reported by Stockman, the president's outburst was a stunning collection of misstatements and non sequiturs. It was, however, out of line with neither the president's more careful statements in public forums nor his tendency to make such misstatements when he was not being careful. "There has not been one increase in history that actually raised revenue," Reagan declared. "And every tax cut, from the 1920s to Kennedy's

to ours, has produced more."^[8] Not so. Most recently, both the 1969 tax surcharge and the 1978 social security tax increases had raised revenues; they did not get social security out of the hole, but that's a different question. Moreover, if tax increases did not usually raise revenues, they would never be adopted.

OMB's FY85 projections showed that the debt would have increased by $587 billion in just the years from 1982 to 1984. By the end of 1985, it would be double what it had been when Reagan took office. By normal logic, that much of the deficit could not be blamed on "them." If you want to retire the debt—Reagan could still "dream of the day when we actually have a surplus, when we can start retiring the national debt"^[9] —doubling it seems a strange way to begin. Yet Reagan was right on the politics if not on government finance. He understood, as Stockman and Feldstein did not, that if he adjusted his policies to respond to the deficit he would be admitting he was wrong. He would be denying the whole premise of his presidency—that America could be governed differently.

Reagan responded to the deficit query by telling people either to look elsewhere for the answer (e.g., Congress) or to change the question. Neither response was merely tactical. Congress had rejected his social spending cuts, engaging in "deficit spending"—though so had Reagan on defense. Nor was the deficit the only public concern. Newsweek reported:

Ronald Reagan contentedly boasts that he kept his campaign promises to prune domestic spending, restore America's military might, slash taxes and lift the yoke of needless federal regulation off the back of business. So what if he miscalculated a little on his pledge to provide a balanced budget by 1984? "I've succeeded in four of those five goals," Reagan has said in private meetings. "I'm batting .800 and that's pretty good in any league I know about."

As a politician, Reagan knew that you rarely got everything you want. Therefore, he treated the deficit as only a partial failure. What president enacts his entire platform?

Reagan also expected to take more shots at the spending side. His Grace Commission was nearing release of its report on waste and inefficiency in government, which would confirm the president's belief that private sector experts could find all sorts of savings.^[10] Reagan also expected to take on entitlements. He told the Washington Post that "it [these programs] just automatically keeps increasing—that is uncontrollable only in the sense that you and Congress and the government are not willing to deal with it and change what you did that was wrong."^[11] In short, with courage, entitlements would some day be dealt with. Leon

Panetta and Pete Domenici would say no different. But what changes, and when?

Members of Congress, however, figured that because nothing big enough could possibly turn up, the president would have to give on defense and taxes. That, as an administration official commented to us, was a lousy deal for the president. Reagan already had his tax cut and defense buildup. Now the president was being asked to give them back in hope, but with no guarantee, that doing so would eliminate his deficit error. Not a good bargain for Reagan's batting average.

Reagan's rejection of tax hikes and endorsement of a 13 percent real increase in defense spending make sense for a politician who sees the deficit as only one of a number of major concerns and who is used to postponing problems. Delay made less sense to people who believed, as did Feldstein and Stockman, that the deficit was unspeakably horrible. Delay was anathema also to people—Democrats, moderate Republicans, and budget professionals such as CBO Director Rudolf Penner—concerned with the interest wheel: that bigger deficits meant higher interest payments and thus higher deficits, ad infinitum. Reagan seems never to have believed that delay was making the problem worse. After all, immediate action meant enacting the tax increases he believed would only lead to higher spending and thus larger future deficits.

Reagan's patience matched his political advisers' belief that 1984 was a bad year to propose social spending reductions. The Democrats were geared up to run a campaign on "fairness."^[12] The previous two budget rounds had demonstrated that even if the White House proposed cuts, Congress would reject them. Reagan's men preferred discretion to ineffective valor.