PRESIDENT REAGAN wants you to believe that all the talk about tax cuts and defense spending driving up the deficit is "real dipsy doodle." In his first post-election speech, delivered this week to an association of savings institutions, the president made it clear that he sees no need to respond to congressional demands that he reshape either his tax or defense programs because -- he says -- "current and projected deficits result from sharp increases in non-defense spending."
Is this really the reason that the federal deficit, which was $28 billion in 1979 and just under $60 billion in 1980 and 1981, hit $111 billion in 1982 and is now aimed in the range of $185 billion in the coming years? Well -- no. It's not as simple as that.
Bad economic conditions account for part of the trouble -- high unemployment and sagging profits drive up benefit costs and depress revenues. This is not entirely the administration's fault, but there is much reason to think that under a somewhat different set of economic policies, things needn't have gotten so bad. Other contributors to current and future deficits, however, were clearly under the administration's control, and here the facts tend to depart from the president's recollection of them.
The 1981 tax cut bill, the administration's first priority, cut corporate and individual income tax revenues by an estimated $377 billion over the 1982 to 1985 period -- and that's allowing for the corrective tax increases passed by Congress last summer. The president notes that these tax cuts simply "neutralize" rises in Social Security taxes. In fact, increases in combined employer and employee taxes for both Social Security and Medicare will be only about $78 billion over this same period.
The president says that growth in non-defense spending is to blame for future deficits. But -- even ignoring inflation -- the only areas of the non-defense budget slated for any growth at all are interest on the debt (an unavoidable obligation), Social Security, Medicare and other health and pension programs. The public has given the president good reason to believe that it doesn't want any major changes in Social Security or Medicare. But if you set these two programs aside, you will find that the entire increase in projected spending over the 1982 to 1985 period is accounted for by defense.
In fact, if defense spending and taxes are kept at the levels that the president wants, all federal programs except Social Security and other pensions, the court system, foreign policy costs and a few other basic functions will have to be terminated in order to balance the budget by 1985.
That comes from a calculation that the many budget analysts on Capitol Hill and Wall Street can make for themselves very easily. The question the president must answer in his January budget is what he proposes to do about it. Harking back to an era when social programs were woefully inadequate--or looking around for someone else to blame -- won't help in framing an answer that Congress, the financial markets or the general public is likely to find plausible.