At the end of the first week of debate on President Reagan's 1984 budget, there was unanimous agreement among economists and politicians that the $200 billion to $300 billion deficits in prospect beyond 1984 should be reduced sharply, and that a start should be made on the job next year.
The consensus was based on a set of economic and budget forecasts, equally unanimous in showing, that even rapid growth of the economy would not eliminate the deficits. "The same reality is being faced by everyone," said Alice Rivlin, director of the Congressional Budget Office.
Remarkably, there was enough agreement about the magnitude of the problem that virtually no one suggested that the gap between spending and revenues could be bridged with spending cuts alone. Tax increases would be needed, too. Of course, there was far less agreement about which spending programs should be trimmed and what taxes raised.
Liberal Keynesian economists, such as Walter W. Heller of the University of Minnesota and George Perry of the Brookings Institution, sounded exactly the same warning as the Reagan administration: cut the deficits once the economic recovery is underway or else interest rates will rise and undermine the recovery.
At the American Enterprise Institute, economists Rudy Penner and William Fellner, who are of a more conservative bent, said the deficits could lead ultimately to a revival of inflation. In the meantime, they will put upward pressure on interest rates and make it more difficult for the Federal Reserve to pursue a non-inflationary policy, they said.
The Congressional Budget Office estimated that current tax and spending policies and a healthy recovery would leave a deficit of $267 billion in 1988. The administration figure, using a higher track for defense spending, was an even $300 billion for that year.
As is customary, Rivlin and the CBO made no specific recommendations for tax or spending changes, but she, too, said the deficits needed to be cut. For 1988, when CBO projects unemployment to be about 7.5 percent, "a reduction of $100 billion or $200 billion is in the right ball park," she said.
Heller, chairman of the Council of Economic Advisers in the Kennedy administration, and a group of other former Democratic administration officials, called for a series of spending cuts and tax increases beginning next year to lop about $120 billion off the deficit in 1986.
"Like everyone else in town, we are concerned about the mega-deficits," especially in the years beyond 1984, Heller said. The deficit reduction program should be put in place as quickly as possible but be designed to "begin to bite gently" with the full impact not coming until 1986, he added.
Separately, Perry stressed the adverse impact on private investment and productivity if the deficits are not lowered as the economy recovers.
CEA Chairman Martin Feldstein went a step beyond the current administration budget. He would prefer that the so-called structural deficit be eliminated entirely or perhaps replaced by a surplus by 1988 when unemployment is projected by the administration to fall to 6.5 percent.
Feldstein told reporters he would prefer that additional domestic spending cuts be used to do the job, which would involve $117 billion in addition to the $190 billion worth of spending reductions and tax increases proposed by Reagan for that year.
But if the spending cuts cannot be achieved, Feldstein said, additional tax increases should be enacted. "I would prefer a good tax increase to a bad deficit," he declared.
Interestingly, there was more agreement that one might have expected about what would constitute a "good tax increase."
At the same presentation as Heller, Emil Sunley, deputy assistant secretary of Treasury of tax policy in the Carter administration, proposed raising taxes by about $40 billion in 1986, primarily by eliminating some deductions and exclusions for the personal income tax and by postponing indexing it for inflation by one year, from 1985 to 1986.
No "big new tax" is needed, nor should marginal rates be raised for the personal income tax, Sunley said. Instead, the emphasis should be on broadening the tax base. Penner, chief economist at the Office of Management and Budget under President Ford and AEI director of tax studies, took a similar tack on seeking to broaden the tax base by eliminating deductions and exclusions.
As for the administration's "deficit insurance" package of conditional tax increases, Penner declared, "Deficit insurance makes no sense at all to me."