Green eyeshade worship of the sacred balanced budget, persistently followed by a Republican Party during half a century in the minority, was behind the Senate Budget Committee's peculiar conduct April 9, which could spell serious trouble for Ronald Reagan.
Defection by three right-wing Republican senators to defeat the budget resolution, 12 to 8, is of no overriding importance in itself. It does create a political problem that the White House will have to work out over the Easter recess. Irretrievably, it slowed down the Reagan economic program's momentum.
But the broader danger for Reagan is the show of Republican susceptibility to Democratic taunts of deficit spending. If Republican members of Congress fall into the Democratic trap of holding Reagan's tax rate reductions hostage to accusations of apostasy in worshipping the balanced budget, Reagan's program is doomed. Clearly, the president has not yet convinced his party that only through lowering tax rates today can the budget be balanced in the future.
Tax rate reduction is not only the cutting edge of Reagan's program to revitalize the economy but also the prime target for the opposition. Democrats first held tax cuts hostage to spending cuts, a tactic that failed when Reagan produced budget reductions larger than anybody thought possible. Within the last two weeks, the tactic was changed to put emphasis on the balanced budget in the plan put forth by the chairman of the Democratic-controlled House Budget Committee, Rep. James Jones of Aklahoma. In essence, Jones was projecting a balanced budget by severely limiting tax reduction, exaggerated in its budgetary impact because of static revenue estimates not accounting for growth.
This proved unusually effective because Sen. Pete Domenici of New Mexico, Budget Committee chairman in the newly-Republican Senate. Domenici has struck a stern Republican bookkeeper's pose toward tax rate reduction. It was far less important, he stressed, than moving toward a balanced budget.
Domenici's inclination along this line were enhanced when he hired as a committee staff economist Preston J. Miller of the Minneapolis Federal Reserve Bank, an institution known as a hotbed of anti-tax-cut sentiment. The bank's 1979 annual report, prepared by Miller, was a screed against the Kemp-Roth tax cut. In 1980, Miller wrote: "The proposed tax cuts will result in less revenue for the government year in and year out and will thus be inflationary." Only a balanced budget will save us, he declared.
Miller is regarded as the principal influence behind Gail Fosler, selected by Domenici as the committee's chief economist. With an MBA in fiance, she has forecast interest rates markedly higher than the Reagan administration's. Consequently, Fosler estimates national debt service $9 billion higher than does Reagan in fiscal 1983 and $10.3 billion higher in fiscal 1984. In fact, the committee's Republican staff is betting on the Reagan program to fail.
Domenici himself sparked last week's blowup by refusing to take budget director David Stockman's IOU for unspecified spending cuts in fiscal years 1983 and 1984, the so-called "out years." That bookkeeping nicety created not only a deficit but also a bounty for Democrats desperately seeking a hold on the Reagan program.
Sen. Bill Armstrong of Colorado, who unlike Domenici is a strong advocate of tax rate reduction, argued that the deficit resolution on the floor would invite destruction of Reagan's tax program. Two freshman Republicans, Iowa's Charles Grassley and Idaho's Steve Symms, agreed. The three defectors, added to the happy Democratic minority, killed the resolution.
Stockman came trotting over from the House side of the Captiol when he learned of unexpected trouble in the Senate but had no solution. The White House inexplicably never even engaged the problem. President Reagan could have averted the embarrassment with a few phone calls to Republican senators (Symms said as much). From the hospital, Reagan would have been irresistible.
All the commotion is about spending and revenue projections for two and three years hence. Thus, Stockman must now find programs to show reductions in the out years, needlessly revving up still more enemies that the Reagan program does not need.
But the real menace is what budget-balance worship does to tax reduction. Another freshman Republican member on the budget committee, Sen. Dan Quayle of Indiana, perceived this. "Do you realize," he asked Symms after the vote, "that you just voted to kill Kemp-Roth?"
The day before the Senate Budget Committee ran amuck, Rep. Jack Kemp had declared that Republicans no longer worshiped at the shrine of the balanced budget. In truth, however, Republican lawmakers have been bowing down to the old idol for the past several weeks, goaded by the Democrats. The folly that led Herbert Hoover to raise tax rates amidst depression has not died in the Grand Old Party. The need for a recuperated Ronald Reagan, who was elected on promises of economic growth through tax cuts an not a balanced budget, was dramatized once again last week.