THE COUNTRY seems to be deciding--by a process of indecision and inaction--to live with the Reagan deficits despite their costs and penalties. Compare the relaxed atmosphere in Congress now with the deep dismay a year ago. Nobody in Congress really likes the idea of a $200 billion deficit. But any significant change would require a tax increase, and not a small one. It was the same choice last year, and in that different atmosphere, under the courageous leadership of the Senate Republicans, Congress pressed forward with a tax bill that, until the last minute, the president opposed. Without that tax increase, interest rates would not have dropped last summer. Without that drop, there would be no recovery from the recession this year.
But a recovery is evidently on the way. The congressional anxiety quotient is down. Do you suppose that the United States is becoming accustomed to living with an unemployment rate and a bank prime lending rate both over 10 percent?
At this time last year, Congress was in a state of genuine alarm over a presidential budget that airily acknowledged a 1982 budget deficit over $100 billion and a massive rise to come in 1983. Now, despite some spending cuts last year and the tax increase, the 1983 deficit will be higher than ever--the result of the unexpected length and depth of the recession.
A lot of congressmen still talk as though the budget could be brought obediently into balance by cutting defense spending, for example, or by whacking at entitlements. As an introduction to fiscal reality, the House Budget Committee has devised a do-it-yourself budget to let you work out the arithmetic for yourself. Do you want to hold the increase in defense spending to 5 percent plus inflation, instead of Mr. Reagan's proposed 9 percent? That would reduce your $200 billion deficit by $9 billion --an improvement, but hardly dramatic. Would you rather go after entitlements? The Social Security bill would delay cost-of-living adjustments six months to save $4 billion next year. On the spending side of the budget, those are by far the largest possibilities under serious discussion this year. Every attack on the deficit comes inevitably back to the same conclusion--that only tax increases can make an important difference in the pattern of rising deficits.
Tax increases, even beyond the Social Security bill, are not beyond possibility this year. There continues to be talk of a surtax, and of revoking benefits that the present law would phase in over the next several years. The dropping price of oil makes an oil tax a very attractive candidate. But there's a political paradox here. As business begins to pick up, a touch of optimism dissolves the desperate urgency that passes tax bills.
As long as deficits stay very high, interest rates will stay very high. Real interest rates are now four to six percentage points higher than they were in 1975-79, during the last sustained recovery. That's a tremendous difference. If the rates stay in that range, the result will be much slower expansion than in the 1970s, generating far fewer jobs. It's a formula for an economy in which standards of living rise only very gradually for those people who are employed--and in which large numbers of people remain unemployed. This country ought to be able to do better than that.