President Reagan proposed a massive realignment of government responsibilities between Washington and the states yesterday and said he would not raise taxes this year because his economic program will bring federal deficits down and restore prosperity.
In his first State of the Union address, Reagan called for "a single, bold stroke" to make government more responsive to the people by stripping an array of more than 40 programs out of federal control and turning them over to the states.
The proposal, which Reagan called "New Federalism," would realize a dream he has had since the start of his political life in the 1960s. He campaigned year after year against big government and his proposal would make federal government a good deal smaller.
"Our citizens feel they have lost control of even the most basic decisions made about the essential services of government, such as schools, welfare, roads, and even garbage collection. They are right," Reagan told a joint session of Congress.
In the major element of the program, the federal government would assume all costs of Medicaid, which presently is a joint federal-state program, and would turn over to the states welfare and food stamp programs.
Reagan also proposed turning some 40 other domestic spending programs over to the states to continue or not as they chose. For an interim period the federal government would also turn over funds to help the states pay for these, but after 1991 that aid would cease and it would be up to the states to levy the taxes to support them.
The president was interrupted by applause 20 times, but initial reaction from legislators indicated that his proposal will meet strong opposition from Democrats and from some Republicans. Senate Finance Committee Chairman Robert J. Dole (R-Kan.), for example, said he wasn't sure that turning food stamps over to the states was a good idea.
Reagan also faces strong opposition from members of his own party to continuing high federal deficits. Sen. William L. Armstrong (R-Colo.) said, "If it appears to the world we are prepared to accept a deficit of between $276 billion and nearly $500 billion to occur over the next three years--and that is the present projection--then Wall Street and Main Street are not going to accept that at all."
The president devoted most of his address to federalism and the economy, but he also briefly said:
* The journey toward civil rights for all citizens "must continue with no backsliding or slowing down." He added that his administration's commitment to equal rights for women "is firm and unshakable."
* He will take further actions if the situation in Poland continues to deteriorate.
* The United States will act firmly toward "those who export terrorism and subversion in the Caribbean and elsewhere, especially Cuba and Libya."
* The nation's legal system, "which overly protects the rights of criminals," must be transformed to combat crime.
* He will soon deliver a major foreign policy address.
Reagan used his speech to hail the achievements of his first year in cutting federal spending, eliminating federal regulations, attacking government waste and fraud, and strengthening defense.
"Together, we have made a new beginning, but we have only begun," the president told Congress.
"The record is clear, and I believe history will remember this as an era of American renewal; remember this administration as an administration of change; and remember this Congress as a Congress of destiny."
It was a speech in which Reagan never had to go against his instincts. He reiterated his belief in the program he put in place last year and went on to call for his long-cherished idea of government realignment.
It also was a speech dotted with rhetorical flourishes dramatizing his appeal. "Seldom have the stakes been higher for America," he declared.
Reagan conceded that the economy "will face difficult moments in the months ahead." But he predicted that his program "will pull the economy out of its slump and put us on the road to prosperity and stable growth by the latter half of this year."
He rejected any "quick fix" course correction in the face of huge estimated deficits for this year and 1983 and 1984--estimates that brought calls for remedial action from all his senior advisers. Instead, the president told the nation to "summon the strength to continue on the course we have charted."
In a passage that could have been addressed to all the president's advisers, Reagan said: "The doubters would have us turn back the clock with tax increases that would offset the personal tax-rate reductions already passed by this Congress. Raise present taxes to cut future deficits, they tell us," said the man who heard that counsel over and over in the Oval Office.
"I will not ask you to try to balance the budget on the backs of the American taxpayers," the president said to his loudest applause of the evening. The applauding members of Congress have no desire to enact tax increases in an election year.
The president went on to promise budget deficits far lower than the $100 billion to $150 billion estimated by others.
The economic forecasts he will submit to Congress Feb. 8 will show a 1982 deficit of less than $100 billion and declining deficits in the following years, he said.
"Higher taxes would not mean lower deficits," Reagan said. "If they did, how would we explain that tax revenues more than doubled just since 1976, yet in the same six-year period we ran the largest series of deficits in our history."
"Raising taxes won't balance the budget. It will encourage more government spending and less private investment. Raising taxes will slow economic growth, reduce production and destroy future jobs, making it more difficult for those without jobs to find them and more likely that those who now have jobs could lose them," he added.
Reagan promised to stand by his program of tax relief, but he urged citizens to act in support of his supply-side theories. "Tonight I am urging the American people: Seize these new opportunities to produce, save and invest, and together we will make this economy a mighty engine of freedom, hope and prosperity again."
He said he will call for savings in benefit programs totaling $63 billion over four years without affecting Social Security and he strongly rejected charges that his spending cuts jeopardize the poor.
"Contrary to some of the wild charges you may have heard, this administration has not and will not turn its back on America's elderly or America's poor," the president said. "I am confident that the economic program we have put into operation will protect the needy while it triggers a recovery that will benefit all Americans. It will stimulate the economy, result in increased savings and thus provide capital for expansion, mortgages for homebuilding, and jobs for the unemployed."
In announcing his proposed realignment of government responsibilities, the president said: "A maze of interlocking jurisdictions and levels of government confronts average citizens in trying to solve even the simplest of problems. They do not know where to turn for answers, who to hold accountable, who to praise, who to blame, who to vote for or against."
The main reason, he continued, is the growth of federal grants-in-aid programs. In 1960, he said, there were 132 categorical grant programs that cost $7 billion and when he took office there were about 500, costing nearly $100 billion.
Neither the president nor the Congress can adequately oversee "this jungle," Reagan said. The details of his proposed remedy remain to be worked out with Congress and state and local officials, he said, but he described it as the return of about $47 billion in programs to state and local government "together with the means to finance them and a transition period of nearly 10 years to avoid unnecessary disruption."
A $28 billion annual trust fund would be raised by the federal government and turned over to the states each year starting when the plan would begin in 1984. The fund would be made up of $16.7 billion from the oil windfall tax, $2.2 billion from the gasoline excise tax, $2.7 billion from tobacco taxes and $6.1 billion from the tax on alcohol.
The states would have the option during these years of continuing the formerly federal programs in the same areas or shifting their spending to programs they consider more valuable.
After 1987, the trust fund would decline by $7 billion a year through 1991 as excise taxes are phased down. The states would be free to impose their own excise taxes on gasoline, alcohol and cigarettes to replace the disappearing federal taxes, under the Reagan plan.
Through 1991, therefore, the states would have considerable federal financial help. The oil windfall profits tax, however, is scheduled to end in 1991. After that year, the states would have possibly sizeable cash shortages.
"Some will also say our states and local communities are not up to the challenge of a new and creative partnership," Reagan said. "This administration has faith in state and local governments and the constitutional balance envisioned by the Founding Fathers. We also believe in the integrity, decency and sound good sense of grass-roots Americans."
The swap of Medicaid costs for the expense of food stamps and welfare also would start in 1984. Reagan said the trade would "make welfare less costly and more responsive to genuine need because it will be designed and administered closer to the grass-roots and the people it serves."
Administration officials said they expect the rapidly rising costs of Medicaid will continue making the exchange a good one for the states. Shedding their present $19.1 billion Medicaid cost in return for accepting the present $16.5 billion cost of Aid to Families with Dependent Children and food stamp programs will become even more advantageous over the years, they said.
By 1987, they predicted, the Medicaid cost to the states would become $25.4 billion while the welfare and food stamp costs would rise only to $17.6 billion.
In addition to the federalism proposal, Reagan called for the establishment of enterprise zones to attract businesses to decaying urban areas and to rural towns.
Reagan ended his address by praising America's heroes. He singled out two men listening to him in the House chamber--Sen. Jeremiah Denton (R-Ala.), a former prisoner of war in Vietnam, and Lenny Skutnik, the young federal worker who dove into the Potomac to rescue a woman after the Air Florida crash two weeks ago.
Skutnik and his wife were guests of the Reagans, seated next to Nancy Reagan, during the speech. When the president mentioned his name, the audience rose for a standing ovation and Reagan waved up to him in the gallery.
"Don't let anyone tell you that America's best days are behind her--that the American spirit has been vanquished. We've seen it triumph too often in our lives to stop believing in it now," the president said.