President Carter has ordered budget officials to cut back hard on the projected deficit in the 1982 budget -- the last one he will submit -- making it his final word in his testy, continuing economic policy dispute with Ronald Reagan.
In meetings with economic advisers last week Carter reportedly insisted that a deficit of $48 billion was too large for the 1982 fiscal year and has delayed several of the individual tax cuts he proposed in the presidential campaign in order to bring the deficit close to $30 billion, aides said.
Carter's final budget may not last long in the memories of official Washington once the new Reagan administration and a new Congress take over next year. But in screwing down the nominal deficit figure, Carter is giving Reagan a tougher target to match in a "can you top this" budget contest.
Some of the calculations in the 1982 budget Carter will propose next month may seen contrived -- such as his renewed proposal for a 10-cent-a-gallon gasoline tax, after Congress trampled the proposal this year. But like his recent predecessors, Carter appears determined to use the budget to fire one more round at the economic strategy of the man who beat him in the presidential campaign and make a statement in defense of his own policies.
The firing picked up last week, when Treasury Secretary G. William Miller and Charles L. Schultze, chairman of the Council of Economic Advisers, ridiculed the emerging Reagan economic strategy as "dangerous" and "nonsense."
The last-minute revisions in Carter's fiscal 1982 budget echo those attacks. Two principal changes involve key elements of the economic program Carter announced in August to counter Reagan's campaign tax cut plan. The Carter proposals were:
A tax credit enabling workers to reduce their federal income tax by an amount equal to 8 percent of their Social Security tax payments, to offset a large scheduled increase in the Social Security tax next year.
A reduction in the so-called marriage penalty, which requires two working spouses to pay more income tax than they would if they were single and had the same incomes. The proposal would allow the spouse with the lower income to exclude 10 percent of that income from taxation.
During the campaign, Carter proposed to have those and other tax changes take effect in January 1981. His new budget reportedly will propose delaying the cuts until January 1982, with the marriage penalty tax break to be phased in after that. These delays would increase tax receipts by about $10 billion in the 1982 fiscal year, Carter aides say. With other changes, the projected 1982 deficit has been lowered from the $48 billion estimate during the campaign to around $32 billion, aides say.
According to the Congressional Budget Office, revenues in the 1982 fiscal year are currently estimated at $700 billion, with spending at $740 billion-plus, with both figures very sensitive to the condition of the economy. b
Carter's efforts to shrink the estimated deficit in 1982 also benefit from a decision to renew the gasoline tax plan. In March, he proposed an excise tax on imported oil that was to be concentrated on gasoline, producing a 10-cent-a-gallon gasoline tax. Revenues from the tax were expected to reach nearly $16 billion in 1982.
Although Congress crushed the proposal in June, it reportedly is back in the budget. So is another rejected Carter proposal from last March to withhold taxes on an individual's dividend and interest income, worth $3 billion to $4 billion in the 1982 fiscal year.
Miller, in an interview with reporters Friday, defended the Carter economic policy as realistic, and condemned the policies outlined by Reagan and the incoming members of his Cabinet.
The purpose in delaying individual tax cuts is to keep the budget deficit as low as possible in 1981 and 1982, Miller said. The prospect of a large tax cut next year from the Reagan administration, coupled with substantial increases in defense spending, raises the possibility of a very large deficit, he said. And that would be a dangerously inflationary development in an economy that still looks surprisingly strong, he added.
Reagan and his advisers, said Miller, are apparently intent on cutting taxes first, which will swell the deficit and add to inflationary pressures, in his view. The "contradictions" in the Reagan policies are already unsettling financial markets, he said, creating expectations of increased inflation and thus, higher interest rates on long-term borrowing.
Miller's criticism is somewhat dated, since Reagan aides have recently been emphasizing their intention to control spending as a companion to tax reduction. Whether Reagan can win congressional approval of large budget reductions is, of course, an unanswered question.
"I have serious reservations about whether they are going to achieve those kinds of reductions," said Miller. However, he added, "We all wish the [Reagan] administration well."