WHILE PRESIDENT Reagan is out on the campaign trail, thumping the tub for Republicans and calling for Americans to "stay the course," his aides in Washington are busy trying to define what that course should be. The old course will have to be altered -- the fiscal 1984 budget to be presented to Congress early next year will inevitably involve big changes in existing tax and spending policies.
Without such changes the budget deficit would approach $200 billion, and would stay there for years. Before Reagan took office, the record budget deficit was $66.4 billion, reached in 1976 in the aftermath of the 1974-75 recession.
Originally, some may remember, Reagan promised to balance the 1984 budget. Few outsiders believed then that candidate Reagan could fulfill that pledge. They pointed to the inherent contradiction between his desire to cut taxes, increase defense spending and balance the budget all at the same time. But no one realized that budget makers would face such an enormous task in reconciling the president's aims for 1984.
The 1984 budget, for the fiscal year that begins next October, may well be the toughest that administration officials have wrestled with yet. The underlying arithmetic is the same as in previous years -- cutting taxes and increasing military spending adds much more to the deficit than can be offset by domestic spending cuts. But this time round there are fewer escape hatches for the budget makers.
Rosy economic forecasts helped to slash projected deficits in 1981 and 1982. Supply-side promises of rapid growth inflated the government's estimates of its likely tax receipts, while reducing forecast outlays on unemployment compensation and other income support programs. Reagan also counted on the bond market rally to cut the cost of interest payments on the national debt. The forecasts never came true.
Fiddling with the economic assumptions underlying the budget is a time-honored way for presidents to improve the numbers, although Reagan fiddled more than most. His first budget program of February 1981 predicted 1984 government revenues of $772 billion. By earlier this year his estimate had shrunk to $723 billion. Even with the sizeable tax increase enacted since then, the Congressional Budget Office (CBO) last month estimated 1984 revenues of $692 billion.
Many of the supply-side optimists have now left the administration and, with what one senior offical described as "a general sobering" all around, senior officials are now agreed on gloomier economic assumptions. That limits the opportunity for bringing down the deficits in the budget document.
Another gimmick the White House used last year to cut projected deficits that won't be available this year was "management initiatives." These were supposed to lop $20 billion out of the 1983 budget and $24 billion from the 1984 deficit, according to last February's budget document. The 1983 "savings" from management changes were larger than the $11.7-billion cuts proposed for entitlement programs, such as Social Security and food stamps, and the $14 billion proposed cuts in discretionary programs.
The deficit reduction package eventually passed this summer backtracked on the president's tax cuts, including $98 billion of revenue increases over three years. Reagan said last month that it would take a "palace coup" for the White House to push for more taxes next year.
The CBO estimates that with no further tax changes federal revenues will slip below 19 percent of the total economy in fiscal 1984, and will stay close to that level. Even some Reagan officials say it is politically impossible to shave outlays -- now estimated at more than 231/2 percent of Gross National Product -- that far.
Reagan has already tried the option of just accepting large deficits for years ahead. The ensuing outcry from White House friends, as well as enemies, has put officials off trying that again, they say.
Moreover, the president has now publicly regained his budget balancing zeal by embracing the balanced budget amendment to the constitution. It won't be easy to sustain that embrace if the president's own Office of Management and Budget can't propose a genuinely balanced budget.
But there is literally no way to propose a balanced budget without going after the two big spending areas that have so far been left virtually untouched by cuts -- defense and Social Security. Only massive tax increases could substitute for cuts in these two.
The CBO estimates that "if the 1985 budget were to be balanced without further reductions in spending for defense and pensions, other noninterest spending would have to be cut by about one-half" from the already reduced levels projected in the first congressional budget resolution this year. Congress is unlikely to swallow such further cuts.
Indeed, the congressional elections could have a big impact on Reagan's budget program. While the president has failed spectacularly to reduce deficit spending or balance the budget, he has had remarkable success in shifting federal spending away from social programs and towards military spending. The White House hopes to cement that change with the 1984 budget, even if it has to back off somewhat from Reagan's original tax and defense programs. Unless the Republicans are extraordinarily successful on Nov. 2, this is a most unlikely prospect.