Two months ago, an admirer and backer of Ronald Reagan predicted (in The American Spectator) that when the president "sits down with his advisers to consider budget recommendations for the first fiscal year of his administration, he will be forced to confront -- as policymaker rather than campaigner -- a set of facts that may well make him wish he had gone into some other line of work."
Things have hardly come to that. Nonetheless, if the public is confused over how Ronald Reagan's much-heralded economic package is going to work, it has good reason. Even some of the president's longtime advisers, including six former chairmen of the Council of Economic Advisers, have some misgivings about its size, shape and timing.
This much seems certain: when the first flush of excitement over the Reagan package wears off, there are going to be many surprised and disappointed Americans, especially those who believed everything they heard during the recent presidential campaign.
As things are shaping up, the 1981-82 tax bill, regardless of what the new administration intends, is not going to be less than it was in 1980, but much more. As the fiscal 1982 budget stands, it calls for an increase of $107 billion in tax revenues. The Reagan men hope to lop $50 billion or so off the tax bill, but even if they succeed, the bottom line will still be an increase of $50 billion or more over last year. So what is really at stake is not a tax reduction in the accepted sense, but simply a potential reduction of the scheduled increase.
President Carter's budget projects expenditures of $739 billion. Reagan hopes to cut that by about $40 billion, but it is a sound bet that the final spending figure will be closer to the Carter mark. When Congress gets through with the Reagan program, the proposed cuts will probably not greatly exceed $25 billion, and that saving would be cancelled out by the administration's plan for increasing military expenditures by $25 billion or more.
The 1982 budget estimates a deficit of $27 billion. Obviously it will be much larger than that if expenditures remain about the same, while estimated tax revenues are cut by around $50 billion, as planned. In that event, spending would total $739 billion as against receipts of around $660, leaving a deficit of almost $80 billion, or even more with continued stagflation.
President Reagan is being ill-served by his advisers when they provide him with melodramatic statements and statistics that can't stand scrutiny, as was notably the case in his recent television speech on the state of the economy. Who, for instance, is going to believe that we are in "the worst economic mess since the Great Depression"?
Back then, 25 percent of our workers were unemployed, the banks were closed, and we were fighting deflation rather than inflation. Today, the banks are secure, and 60 percent of all persons of working age are employed, an all-time high. That adds up to 97.7 million jobs, with another 4l5,000 added last month.
Reviewing the American standard of living since 1960, Reagan says, "We all know we are very much worse off," whereas in fact, average personal income, even after allowing for inflation and taxes, has almost doubled in that period. Gardner Ackley, former chairman of the Council of Economic Advisers, bluntly says, "Clearly in every respect we are better off than we were then." Much better off, other economists would say.
The president says "we have too much money chasing too few good," although the problem is just the reverse in many of our largest industries, such as autos and steel, where supply far exceeds demand. Plants in the United States are operating at less than 80 percent of capacity.
Finally, the president warns that business is being taxed so hard that it is "being priced out of the world market." Actually, exports in 1980 were 22 percent higher than in 1979. Foreign trade, reports The Wall Street Journal, "which once played only a minor part in the country's economic picture, now occupies a huge, rapidly expanding role."
Are we, as Reagan asserts, "threatened with an economic calamity of tremendous proportions"? In the wake of that speech, the financial pages have been dominated by headlines like these: "Corporate Profits Rise 10 Percent," "Gross National Product Jumps 5 Percent," "U.S. Industrial Production Gains Fifth Month In a Row, Dollar Scores Fresh Gains."
The moral seems to be: Don't sell America short.