The budget proposal that President Reagan sent to Congress yesterday is mainly a system of income redistribution, and the largest transfer is between generations: more than a fourth of the budget is made up of checks that are sent out to old people.
Of the $848.5 billion in outlays the budget calls for in fiscal 1984, $234 billion, or 27.6 percent, is aid to the elderly, documents prepared by the president's Office of Management and Budget show.
About two-thirds of this aid is in the form of retirement benefits, chiefly through the Social Security System and the Civil Service and military retirement programs. Most of the rest is in Medicare.
Fiscal 1984 will begin next Oct. 1.
The government regularly is belabored for what it takes away in taxes; the budget is a symbol of this, and is bemoaned as being too large. Yet only a small portion of the budget stays with the government. Most of the money it collects is given back in the form of benefits, interest payments, grants and contracts.
The main activity of government may be check writing.
As proposed by the president, 42 percent of the budget would take the form of direct payments to individuals, the OMB said yesterday. The largest chunk would come under Social Security, which is about a fifth of the budget. Other large so-called transfer programs include Medicare, unemployment compensation, the federal retirement programs, food stamps and welfare.
Twenty-nine percent of the budget would go to defense, according to the OMB, and 12 percent would go to pay interest on the national debt.
A further 11 percent would be paid out in grants to state and local governments. In the late 1970s these federal grants to states and cities made up about 17 percent of the budget, and about 25 percent of state and city revenues. They include programs ranging from highway aid and sewage treatment grants to Medicaid and federal aid to education. And, they have been the hardest-hit sector of the budget in the cuts of the last two years.
The remaining 6 percent of the budget is what pays for all other federal operations. In effect, it is what the bureaucracy consumes.
Because the budget breaks down like this--because so much of it consists of transfer payments, and so many go to the elderly--demographics will drive it in the future.
As the post-World War II baby boom generation moves toward retirement and the population ages, the elderly will present an ever-larger claim on the federal tax dollar. In this sense the budget will become, as to some extent it already is, an arena for intergenerational politics.
Reagan has already moved to affect the mix of federal expenditures, lifting defense while slicing at the domestic side, most notably at state and local grants.
In this new budget proposal he would move against the transfer programs as well. His recommendation to delay cost-of-living increases this year for Social Security and other beneficiaries is one important demonstration of this.
There also has been a shift over time in the sources of federal revenue. Reagan has 35 percent of the fiscal 1984 budget dollar coming from the individual income tax and 29 percent from social insurance receipts, meaning mainly the Social Security tax. Six percent would come from the corporate income tax, 5 percent from excise taxes, 3 percent from other sources and 22 percent from borrowing.
The borrowing share would be higher in fiscal 1984 than in many past years.
The longer-term trend has been for social insurance receipts to rise as a share of revenues, the corporate income tax to fall. The individual income tax has stayed about the same.
These shifts probably have reduced the progressivity of the federal tax mix. The individual income tax is progressive, in that rates rise with income. The corporate income tax may also fall hardest on the upper-income brackets, though economists debate this. But the Social Security tax falls harder on those in the lower- and middle-income brackets than at the higher levels.