With Washington now filled with talk of tax increases as the White House struggles with Congress over a budget compromise, it is increasingly clear that the tax-cutting supply-siders whom Ronald Reagan brought into government have been pushed to the sidelines of policy, or have left the government entirely.
"It's much more difficult under these circumstances to really keep the supply-side position intact within the administration," said an official at the Treasury Department, which has been the bastion of the supply-siders. "We're facing opposition from all sides . . . from just about everyone but the people in Treasury," he said.
One supply-sider--Paul Craig Roberts--has left the Treasury for a newly created chair at Georgetown University, and rumors abound that another supply-sider--Norman Ture--is also going to leave soon. Ture, Treasury undersecretary for tax and economic affairs, said last week that these reports "are premature." He added "I may be, but not yet." Ture has reportedly told Treasury Secretary Donald Regan he will remain until July.
If he does leave, said one of his staff, "it won't be for any reasons other than . . . health problems and . . . he has taken a financial beating here." But other administration sources say Ture is increasingly being left out of economic policy making. On some occasions, Treasury staff members have been instructed not to show him policy analyses, one official said last week.
As outside supply-siders have complained, supply-siders within the administration have been outnumbered all along. Most Reagan aides say they are supply-siders in one sense or another, but there are fewer fully committed advocates of the supply-side school who put tax-cutting far ahead of other economic policy goals and want Reagan to hold onto his multi-year individual tax cuts come what may.
In the Treasury, along with Ture and Roberts, were supply-siders Manual Johnson, now "acting" in Roberts' job, and Steven Entin, deputy assistant secretary for economic affairs.
Almost from their first days in office, these supply-siders have found themselves pitched against those, particularly in the Office of Management and Budget, who believe that the budget deficit must be reduced even if this means accepting higher taxes.
OMB Director David A. Stockman long has argued this view within the administration, and last fall infuriated supply-siders by labeling their tax cut as a "Trojan horse" in his now-famous Atlantic Monthly interview.
It is not just Stockman who has argued for tax increases, however. Roberts said last week "many of the president's advisers" are in "unhealthy competition" with the president's own economic program of tax cuts. Another Treasury official commented that it has "always been the way with Jim Baker," (Reagan's chief of staff James A. Baker, who is the main White House negotiator on the budget) to reach for political compromise rather than hold to supply-side principles.
Going public last November with his worries that "the administration might forget what it came here to do in the first place," Roberts described in a Fortune article the "tensions between traditionalists" at OMB and both supply-siders and monetarists.
Since Roberts left the administration, the charged atmosphere in inter-departmental economic policy meetings has dissipated, one official said. But the policy disagreements persist, at least at the lower levels, and so does some of the backbiting.
One Reagan aide remarked last week that it was difficult to see what the president gained from having Regan as Treasury secretary. Another official described Murray Weidenbaum, chairman of the Council of Economic Advisers, as a "diplomat" who "is wherever the wind blows," although, he added quickly, "that's not really fair; he's a nice guy to work with." A department spokesman, speaking for Regan, said Weidenbaum is a "learned man who does his homework."
A different Treasury official has accused Stockman of inflating his estimates of this year's likely budget deficit to put pressure on Congress for a budget compromise--which could include tax increases. And Lawrence Kudlow, chief economist at OMB, was described as a "chameleon," who has modified his views to suit the moment, by an ex-OMB official who has now left the administration.
Such name-calling isn't unique to this administration. Despite these private comments, however, "there is really no conflict now" at the meetings of second-level economic officials, which Roberts used to attend, one Reagan aide said. This is because these officials "are not asked to resolve" the issues they discuss, but just to send up the differing opinions for resolution by the top tier, or economics "troika," consisting of Weidenbaum, Stockman and Regan, he explained.
Another official put it differently. In recent discussions at the "Tier 2" level, the CEA has scarcely been involved, this official said, while the Treasury influence has been weakened by the fact that supply-sider Johnson--who is filling Roberts' shoes--is only acting assistant Treasury secretary. Moreover, Treasury Undersecretary for Monetary Affairs Beryl Sprinkel, a monetarist, has been working on international issues rather than domestic policy, and Jerry Jordan of the CEA, another strict monetarist, has been away on speaking tours and attending conferences in recent weeks, this source said. This has left OMB a clear field to produce economic analysis, he added.
Jordan said last week that his frequent absences were "not at all" because he is disenchanted with his job, but because he decided "at this particular period" after the publication of the CEA economic report that it was "my comparative advantage" to be a spokesman for Reaganomics.
The Commerce Department is not usually a main player in economic policy. But recently, Assistant Secretary Robert Dederich and Chief Economist Robert Ortner have been brought increasingly into the process, sources say. Dederich is "negative, very negative on the program" of tax cuts, one supply-sider said. He and Ortner generally side with OMB's more pessimistic view of economic prospects, this official said.
Another source said that Commerce officials have been included because Secretary Malcolm Baldrige has taken an active interest in economic issues, and because there has been increasing recognition of the forecasting capabilities at Commerce.
Until recently, Regan has held up the supply-side banner at the top level, sources say. He has been most optimistic about the economy, OMB has been most pessimistic, with CEA somewhere in the middle. One Treasury supply-sider stressed last week, "I totally reject the idea that Don Regan is not listening" to Ture, and other supply-siders. "He tries to get our input. . . . We've always been included in Don Regan's inner circle on strategy meetings."
But on Friday, Regan suddenly changed his public posture on the importance of deficits and expounded the view that insiders say is pushed most by OMB.
"These huge budget deficits cannot be allowed to exist," he said on television. Why not? "The deficits . . . are thought to be causing high rates of interest," which have brought the economy "right to its knees." Regan said that "if Congress steps forward with the president and says, okay, we are going to do something about it the deficit , that's the signal the market wants. Then interest rates start down. Then business starts to revive."
This argument that high deficits are a basic cause of today's high interest rates has injected a sense of urgency into the budget debate that should not be there, a tax cutter insisted. However, it is one that many analysts now believe.