THE BUDGET that President Reagan is submitting to Congress can be seen as having two parts. The first is made up of the various government trust funds. The Social Security and Medicare funds are by far the largest of these. The funds for civil service and military retirement, unemployment insurance, highways and airports and airways are the principal others. The trust funds, which account for about a third of federal spending, tend to be regressively financed -- and they are in surplus.
The other part of the budget is progressively financed -- and in deficit. About half the spending in this sector is for defense, the rest for the civilian departments and interest on the debt. The money comes mainly from the individual and corporate income taxes and the federal estate tax. They aren't enough to bear their burden. The so-called federal funds deficit is greater than the trust funds surplus -- that is why the budget as a whole is in deficit.
The Congressional Budget Office says in a new report that this trend will continue. In the current fiscal year, the trust funds surplus is likely to be $97 billion, the federal funds deficit $254 billion. By 1993, the trust funds surplus will be $161 billion, but the federal funds deficit will be $295 billion.
It's a terrible trend for at least two reasons. First, it means the cost of government is being shifted in the wrong direction. The overall federal tax mix is becoming less progressive. Instead of income taxes, excess Social Security and gasoline taxes -- meaning taxes in excess of current Social Security and highway costs -- are being used to finance the general government, including defense.
The second problem lies in the future. The main trust fund surplus is in Social Security. The fund is being fattened against the day in the next century when the baby boomers begin to retire. But the fattening is occurring only on paper. In the real world the extra money is all being spent as fast as it comes in, on other purposes. What then happens when the baby boomers begin to retire? It will be even more apparent than it is now that the government has been living beyond its means, that taxes are not enough to cover costs -- and both will have to be adjusted. The Reagan mistake of cutting income taxes while letting defense costs rise was even greater than it now seems.