The political climate that gave birth to President Reagan's economic program has become increasingly fragile, and a major shift in the winds could significantly alter the tenor of the 97th Congress or halt the administration's fundamental change in government policy.
Underlying the extraordinary legislative success of President Reagan in 1981 was a broad consensus that "social spending," a term used to describe government benefits to the poor and those with marginal incomes, was a major cause of the economic malaise.
This belief gave momentum not only to Reagan's candidacy but to one of the most radical alterations of government policy since the Depression: the program of budget cuts aimed largely at welfare, and tax reductions geared to the wealthy and upper-middle classes.
Since then, however, two forces working against his continued control of the Congress have emerged.
The first is the split within Republican ranks. In the face of the recession and projected deficits approaching $200 billion instead of a surplus in 1984, growing numbers of key GOP members can no longer be counted as loyal soldiers marching to the supply-side drum.
Instead, they are close to rejecting part, if not the substance, of the basic Reagan policy, which holds that the economy will be revitalized by a tax cut of $285 billion through 1984, budget cuts of about $40 billion this year and undetermined amounts in 1983 and 1984, while defense spending goes from $159.9 billion in 1981 to $259.9 billion in 1984.
In addition, proposed new budget cuts are already running into strong opposition from Northeast and Midwest Republicans, including past administration supporters such as Sens. Alphonse D'Amato (R-N.Y.) and Dan Quayle (R-Ind.).
Perhaps most threatening to the administration's policies is a growing perception that they are inequitable. Evidence suggesting this perception is found both in poll data and in the actions of members of Congress.
A Washington Post-ABC poll published Nov. 25 showed Democrats were favored 47 to 31 over the GOP as the party more likely to assure that taxes are fair to everyone. Democrats were seen by an overwhelming margin, 68 to 17, as the party more likely to protect the interests of the poor. Finally, President Reagan was seen by an absolute majority, 54 percent, to favor the rich, as opposed to favoring the middle class, poor or being equal to all.
In Congress, this trend has been evident in increasing pressure from Republicans for tax "reform"--the closing of tax expenditures, or loopholes. These special breaks in the tax code are considered by many economists to be back-door methods of federal spending.
Tax expenditures, particularly those considered politically vulnerable, include many used by the affluent and specific industries, including oil, timber, drug companies and banks. In addition, Sen. Robert Dole (R-Kan.), chairman of the Finance Committee, is exploring the idea of expanding the "minimum tax," whereby profitable corporations and affluent individuals who are able to used deductions and credits to wipe out their tax liabilities are required to pay at least a minimum amount to the federal treasury.
The shift of attention to the tax code suggests at least a partial diversion of blame for the nation's economic woes from social programs to the tax breaks allowed those in the upper brackets and corporations.
This shift is by no means limited to liberal Democrats; it also includes a number of moderate and conservative Republicans, such as Sens. Pete V. Domenici (R-N.M.) and Nancy Kassebaum (R-Kan.), along with many of the 16 freshmen GOP senators.
They and others are worried about the political ramifications of a tax policy that allows more corporations to pay no taxes and reduces the liability of the wealthy, while unemployment is expected to reach 9 percent and union members face "givebacks" of previous wage and fringe-benefit gains.
In a calculation of significant political consequence, A. Gary Shilling and Co., a New York economic consulting firm, found the following distributional effects of the budget and tax cuts in the current fiscal year:
For the 32 percent of the nation's households with incomes of less than $11,500, the net effect will be an income loss of $8 billion; for the 30.8 percent earning between $11,500 and $22,900, the net result will be a loss of $10.8 billion; for the 30.7 percent of households making $22,900 to $47,800, there will be a token gain of $0.6 billion; for the 6.5 percent of households making in excess of $47,800, the net gain will be $9.2 billion.
All these factors combine to make prospects for the coming session on both tax and budget issues highly uncertain.
Democrats are not prepared, either in terms of capacity to muster majorities or in reconciling deep divisions within their voting constitutencies, to present economic alternatives backed by political muscle. Consequently, they are likely to limit their actions to sniping at the administration.
One form this sniping is likely to take will be increased criticism of the tax bill passed last year, including hearings by various Democratic-controlled House panels attempting to demonstrate the failure of the program to produce either the new investment or stepped-up productivity the administration predicted in the beginning of 1981.
In addition, if the administration sponsors a tax "enhancement" bill--a euphemism for tax increases--a number of Democrats in the House will strive to amend it to take back the breaks given oil companies in the 1981 bill, and perhaps also to eliminate other provisions beneficial to that industry.
Many of the Democrats on the House Ways and Means Committee, particularly those from northern states, voted for the breaks for the oil industry to try to win the oil-state southerners' votes for the Democratic tax bill. But when Reagan matched the breaks, the southerners all jumped ship.
While Democrats remain stymied in developing larger strategies, Republicans may attempt to force a major change in the direction of the administration's economic program.
Republicans are likely to try to reduce the increase in military spending, sharpen attacks on entitlement programs--including attempts to reduce cost-of-living raises in Social Security benefits--and try to eliminate some tax expenditures.
If, as it has indicated, the administration tries to raise revenues through increased excise levies on tobacco, alcohol, gasoline and telephone use--all taxes on consumers--both conservatives and liberals in Congress have promised a fight.
They are likely to try to cut back on elements of the 1981 tax bill, perhaps including postponement of the 10 percent individual rate cut scheduled for July 1 and reduction of some of the business tax breaks, such as the controversial "leasing" provisions allowing corporations to buy and sell tax breaks.
For Reagan, attempting to maintain his momentum with Congress, the key factor will be the economy. If he is to be vindicated it will not only have to pull out of the current recession while holding to a relatively low inflation level, and there will have to be a sharp increase in business investment. It also will have to avoid sky-high interest rates, which could return because of concern over the federal deficit.