With the signing of his tax and budget bills yesterday, President Reagan changed the direction of American economic development. The economy has been knocked back and forth many times in recent years, but generally by the unexpected and the unintended -- by war, by oil crises, by surges of inflation. This time it's being done deliberately, in pursuit of an explicit purpose. For most Americans, the measure of success will probably be the inflation rate, and whether it now declines without creating higher unemployment and hardship.
The effects ought to begin to be visible rather soon. Most of the reduction in corporation taxes is retroactive to the beginning of the year. The cut in withheld income taxes arrives in a month and a half, barely time for the Treasury Department to distribute the new tables. Most of the budget cuts take effect at the same time, at the beginning of the fiscal year on Oct. 1.
There's an important difference between the tax bill and the budget bill -- a difference of which you will repeatedly be reminded through the remaining three and a half years of this administration's term. The tax bill is designed to produce progressively larger reductions in revenue as time passes. It is expected to reduce next year's revenues by perhaps $38 billion below the level that the previous law would have collected. But in 1983 the reduction will be more than twice as large, and in 1984 almost four times as large.
In contrast, the budget bill that the president signed yesterday will reduce spending a little more, but only a little, as the years pass. The tax bill was designed to be the only major tax legislation that this administration will require. But the budget bill is to be only the first of many, under the Reagan strategy. That's why the administration forcefully emphasizes the necessity for Congress, when it returns to work in September, to keep making still more cuts in spending for the year immediately ahead.
If the administration should fall behind in its schedule of budget cuts, there would be an immediate impact on interest rates. The Treasury has already announced that, for the rest of this year, it will have to borrow more than it had expected. The reaction in the financial markets is one of the reasons why rates are staying extraordinarily high this summer. The threat of high rates is one that the White House not only foresaw, but consciously built into its program to act as the enforcer of its intention to keep tightening spending.
For Mr. Reagan, the economy of signing these two bills must have been an extraordinary gratifying moment. The legislation is not merely important but crucial to his presidency. It has been enacted in six months during which the whole fiscal issue has moved on his terms, to his specifications, to his schedule. It is possible to congratulate Mr. Reagan on this remarkable feat and yet to feel deeply uneasy about the cost, to many Americans, at which these further unspecified billions of dollars are to be dropped from a budget already severely constrained.