President Reagan finally has come down to the budget issue that has dogged him throughout his political career: cutting Social Security benefits.
That is the underlying message of the last two weeks of skirmishing over budget and taxes in which the president has indicated he intends (1) to stick with his defense buildup next fiscal year, but (2) have no tax increase beyond the one pending in Congress and (3) still drive down the federal deficit.
The only way to accomplish all three objectives is to make further large cuts in domestic spending, and many domestic programs already have been cut close to the bone.
The largest and ripest left are the entitlement programs, the basic benefit programs at the heart of the budget. And the largest and ripest of these is Social Security, which now is about a fifth of the budget and which so far has not been cut significantly.
Administration officials will not say directly that Social Security cuts are next. Social Security is probably the most sensitive of all political issues except war and peace. One American in seven is supported in whole or part by Social Security payments. And the Nov. 2 congressional elections take place before the fiscal 1984 budget is scheduled go to Congress, next January or February.
But there is no secret about the direction the administration is headed.
"We still have much further to go in reducing the increase in government spending," Reagan said at his July 28 news conference.
David A. Stockman, director of the Office of Management and Budget, told the Senate Budget Committee last week, "As a practical matter it would be necessary in the '84 budget . . . to substantially reduce non-defense spending beyond what we've done already . . . to close the budget deficit gap."
Next year "we will have an all-out campaign to cut entitlements," a senior administration official said in a recent interview.
And given the implacable math of it all, "the word entitlements then becomes a euphemism for Social Security," said economist Rudolph Penner of the American Enterprise Institute, who served in OMB during the Ford administration.
There are other large entitlement programs: Medicare, Medicaid, food stamps, housing assistance, college student aid. But some of these already have been cut, and others are slated to be cut this year. Further cuts in these are unlikely to do the job for Reagan without inroads into Social Security--either in current benefits or in future benefit increases--as well.
The Social Security system has been nettlesome for Reagan since his earliest days in politics. In the 1960s he created a tempest by suggesting that participation might be made voluntary.
By the 1976 presidential campaign, he had become so sensitive about it that he exempted Social Security along with defense from $90 billion he said could be cut from the federal budget. But this came to embarrass him, too, because by exempting Social Security he was condemning the rest of the government to be cut nearly in half.
Last year he again ran afoul of the issue, proposing at one point that deep cuts be made in benefits, on grounds they were needed to keep the system solvent. Critics quickly accused him of trying to balance the budget on the backs of the elderly, saying his cuts were more than were needed simply to stabilize Social Security. He withdrew the proposals in his one such setback of the year, and named an advisory commission to report this winter.
There now is an expectation in Congress that Social Security will be at the top of the agenda after the November elections, if only to prevent the system from going insolvent in July next year as projected.
Administration officials, speaking on condition they not be identified, also see a harbinger for Social Security in the appointment last week of Harvard economist Martin S. Feldstein as chairman of the president's Council of Economic Advisers. Feldstein has argued that future increases in Social Security costs must be held down and that benefits can safely be trimmed for recipients who are not poor. His work on the subject was an important factor in his selection by White House officials looking at the Reagan economic agenda for next year.
What kind of cuts are proposed also may depend in part on the recommendation of the Social Security advisory panel, which is divided between one group that wants to cut hard and another that thinks the system will revive when the economy does and that gentler remedies will do.
Reagan last year proposed, among other things, stricter eligibility standards for disability benefits and sharp cuts in the benefits of workers who retire before age 65 in the future. At the other extreme are organized labor and some Democrats who have proposed no benefit cuts and instead would finance Social Security--or at least the Medicare segment of it--partly out of income tax revenues.
A middle-ground alternative, which many members of Congress seemed to find attractive last year, would be to curtail future cost-of-living increases in benefits. Reagan so far has shied away from this.
After Reagan indicated two weeks ago that he remains determined to build up the defense budget, one official said: "We are stuck here and the battleground is going to have to be entitlements, and it's going to cause quite a stir in the administration."
"If this is really what the president wants, we are going to have to fish or cut bait after the November elections," the official said. But he cautioned that Reagan's intentions could change in the next five months, just as they did last year on taxes. "The true battleground is going to be late in the fall," he said. "I am sure Reagan is going to be tested again over this."
In fact, many conservative economists outside the administrtion, as well as a number of senior presidential aides, believe Reagan has yet to really face the consequences of his defense buildup.
"The dilemma Reagan and Congress will face if they want to go whole hog on defense is much more serious," said Penner. He noted that Reagan already has cut into the "muscle" of many domestic programs. "The options are not happy ones, and that's why I wouldn't rule out further tax increases," he added, even though Reagan is struggling to quiet a conservative revolt over the tax increase bill now pending.
"I really think, if they want to go ahead on defense, they are going to have to have tax increases or huge deficits."
Added one presidential aide: "I think we are going to be fighting this battle for the rest of this administration."