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1 Elsie M. Watters, The Reagan Budget: 1984-1988 1 (1983)

handle is hein.tera/agaet0001 and id is 1 raw text is: TAX FOUNDATION, INCORPORATED 1875 CONNECTICUT AVENUE, N.W. REPORT WASHINGTON, D.C. 20009 TELEPHONE (202) 328-4500 The Reagan Budget: 1 984-1988 By Elsie M. Watters Director of Research, Tax Foundation, Incorporated Scrutiny of the 1984 budget suggests strongly that the prob- lem of bringing Federal fiscal affairs under control has been vastly underestimated in the past, nof only by the Reagan Administration, but by fiscal economists at large. On the outlays side, two factors seem dominant. As the budget cor- rectly points out, the United States has for many years lagged behind most major industrial nations in its social insurance programs. Only now, in their catching up and maturation stage, is the impact of these programs and their powerful growth momentum being fully experienced. There is also no question that what might have been a normal buildup in national defense needs was allowed to fall far behind during the 1970s. The Administration's efforts to control expenditure growth seem heroic in some respects. After Congress approved sub- stantial amounts of the President's recommended cuts in the 1982 and 1983 budgets, the 1984 budget is proposing further reductions from current policy projections, totaling $348 bil- lion through 1988. Certainly not all of the proposals will be approved by Congress. Even if they were, the share of gov- ernment outlays in the economy would grow about as rapidly in the 1980s as it did in the 1970s. Two years ago the Administration predicted-now admit- tedly with excessive optimism-that by fiscal 1984 outlays would be brought down to 19.3% of Gross National Product (GNP). Outlays for the 1980-1988 period, as proposed in the 1984 budget, would climb by 3.1% a year when adjusted for general inflation (consumer price index), only fractionally less than the 3.3% rise on a similar basis that occurred from 1970 to 1980. Again assuming all the proposals are approved, and that the Administration's economic assumptions are suffi- ciently accurate, projected outlays by 1988 would remain at 23.2% of GNP, down by just two percentage points from the peacetime record of 25.2% estimated for 1983 and well above the share claimed during the 1970s generally. Similarly, the revenue outlook provides little grounds for optimism in reducing the size of the government sector rel- ative to the economy as a whole. Under the Administration's proposals, including the standby taxes, budget receipts, ad- justed for general inflation, would rise by an annual average of 3.0% from 1980 to 1988, higher than the 2.4% a year growth from 1970 to 1980. As a consequence, Federal budget receipts would claim a 20.6% share of GNP in 1988, higher than in any year of the 1970s and above their 20.1% share in 1980. None of this is to gainsay the obvious fact that, absent policy initiatives of the sort the Reagan Administration has put forth, both receipts and outlays would claim an even more substantial share of the economy in the 1980s than is projected in the new budget. For those concerned about the high claims of the govern- ment sector on the economy, there seems to be but one ray of hope, apart from further massive spending reductions, a course not now viewed as politically realistic: better perfor- mance of the overall economy than the Administration and many others now forecast for the 1980s. The Administration says that real economic growth would have to be about 5.1% annually (1.33% higher than its current estimate of 3.8%) in order to achieve full employment and balance the budget by 1988, even if Congress approves the President's package of sweeping policy changes. Behind these best-case projections are some major unan- swered questions. Technical experts disagree on what the productive capacity of the nation is or will be, on what levels of employment and other resource utilization will produce full or high employment, and on how these and other factors may combine to reduce or eliminate the so-called struc- tural deficits. The Administration's projections of the econ- omy's potential and of the consequent budget levels during the 1980s, while perhaps realistic, are not encouraging. They are, however, educated guesses, as valid as anyone else's reading of the fiscal tea leaves. FOUR MAJOR THEMES In his budget message on January 31, President Ronald W. Reagan reiterated the four themes emphasized in his two previous budgets: the Administration's desire to limit tax burdens, reduce the growth of overall Federal spending, di- minish Federal regulatory burdens, and support a monetary policy that would bring inflation inder control. While reaf- firming these aims, the President's message on the 1984 budget reflected poignant concern over a somewhat different aspect of budget policy: the large and continuously rising deficits that are foreseen in the 1980s in the absence of major policy changes. For fiscal year 1984, the budget proposes outlays of $848.5 billion, a nominal increase of $43.3 billion or 5.3% over the currently estimated $805.2 billion in 1983. Receipts are put at $659.7 billion in 1984, an increase of $62.2 billion or 10.4% from the $597.5 billion collected in the current fiscal year. The budget deficit would be $188.8 billion in 1984, down by $18.9 billion from th! $207.7 billion now estimated for 1983. The indicate I deficits this year and next would raise gross Federal debt from $1.147 trillion at the end of fiscal 1982 to $1.606 trillion by September 30, 1984, or by 40%. To finance the budget deficit and the off-budget deficit (estimated at $14 billion in 1984), the Treasury expects to borrow from the public $215 billion in 1983 and $203 billion in 1984. (Borrowing in 1982 came to just under $135 billion.) According to the budget, the proposed deficits will absorb 135% of net private savings in 1983 and 101% in 1984. Copyright 1983 by Tax Foundation, Incorporated, 1875 Connecticut Avenue, N.W., Washington, D.C. 20009 (202) 328-4500