It's a reliable rule of American politics that a president who defies his congressional party leaders on a critical issue borrows trouble. But Ronald Reagan's State of the Union message signals his readiness to run that risk by refusing to budge on the issue of new taxes.
Key congressional Republicans began to straggle on the march to a supply-side Valhalla last summer. Even as Reagan was routing the Democrats, worrying deficit projections for fiscal 1983 and after began circulating. Ever since, the president has been getting urgent signals from Capitol Hill Republicans --Dole of Senate Finance, Conable of House Ways and Means, floor leaders Baker and Michel--that the arithmetic is politically and economically dangerous, that something drastic must be done about lurking "out-year" deficits. He ignored them.
The choices are unpleasant, but must be faced. The squeeze on discretionary spending has gone the limit. Curbing mandatory "entitlement" spending (e.g., sacrosanct federal pensions and veterans' benefits) is political dynamite. That leaves only "revenue enhancement" --or, in plain English, tax increases.
The alternative is triple-digit deficits in recovery years, a danger to the country and the GOP. As House Minority Leader Robert Michel warned as recently as Monday night, those huge deficits may be indigestible for rank-and-file Republicans in an election year. Republicans, Michel warned, might balk at voting for budget resolutions embracing deficits put by current congressional projections at $157 billion in fiscal '83, $189 billion for '84 and $214 billion for '85 (assuming no change in current policy). Destroying the budget process, moreover, would throw away the device by which Reagan forced Congress last year to react to his program en bloc rather than piece by piece.
The near-term outlook is less grim. Even at $109 billion, the current deficit would be about 3.6 percent of gross national product, smaller than the 4 percent in the record-setting recovery deficit of 1976. It is the scary prospect of huge deficits in recovery years beyond '82, averaging up to 5 percent of GNP, that makes GOP leaders swallow hard and wonder if the president is keeping his head now only because he doesn't understand the situation.
Understand it or not, he clearly clings to the dubious supply-side economic doctrine of Rep. Jack Kemp and others.
Defying the Nervous Nellies Tuesday night, Reagan said that future deficits are an "imponderable." They are. But the record shows that they tend to be "imponderable" because administrations invariably overestimate future growth and revenues and underestimate the stickiness of inflation and interest rates.
If Reagan clings to his high-wire anti-tax course and takes a tumble, he will be tempted to blame failure on the Federal Reserve. But the Fed is only the carrier of a message originating in the financial community. After the pinch of 1974, the money lenders won't soon again fail to hedge all bets with high interest charges. Anyway, the Fed has only been doing what good supply-side theory calls for.
Reagan's visionary "new federalism"--the proposed transfer of some 40 federal programs to the states over four years--invites skepticism too, and should. Reagan would offer the states what remains of the oil windfall tax. But that revenue source will fade out within a fixed time. The states would then be left to find new tax sources or fold the programs put on their hand.
Everything economic is iffy, of course. Nobody has a crystal ball. As of today, the president's party, the country and probably many Democrats are still in philosophical sympathy with the president's goals--lowering the tax burden, decentralizing government, deregulating an economy snarled by red tape. They are good goals, and the Democrats have no respectable alternative, except to wait, Micawber-like, for something to turn up.
But on the bumpy road Reagan has taken, something is sure to turn up. If soaring prosperity-year deficits overheat the economy, bringing resurgent inflation, interest rates and more recessions, the president will have been the Democrats' best friend and the country's worst.