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1 Elsie M. Watters, The Reagan Budget: 1985-1989 1 (1984)

handle is hein.tera/regbudt0001 and id is 1 raw text is: TAX FOUNDATION, INCORPORATEDo l C A RT WASHINGTON, DC 20005 ONE THOMAS CIRCLE, N.W., SUITE 500 SP. CIA .P. TELEPHONE (202) 822-9050 The Reagan Budget: 1985-1989 By Elsie M. Watters Vice President-Research Tax Foundation, Incorporated Only the threat of indefinitely prolonged high budget deficits threatens the continuation of sustained non- inflationary growth and prosperity. It raises the spec- ter of sharply higher interest rates, choked-off in- vestment, renewed recession, and rising unem loy- ment. President Ronald Reagan in his Budget Message, February 1, 1984 These remarks by the President, in presenting his 1985 budget proposals to Congress, pose the basic challenge to lawmakers in making budget decisions in 1984 and beyond. The Administration seeks a freeze on overall domestic spending in real terms for the rest of the decade and other changes that would restore the defense/nondefense ratio of Federal spending to its 1971 structure. Under budget as- sumptions that include sustained noninflationary growth and prosperity, the proposed changes would continue to reduce total budget claims on the economy, even though progress toward that goal would be slower than had been anticipated or recommended in previous budgets of this Administration. For the time being, the Administration has set aside its previously espoused goal of reducing spending to 19 percent of gross national product (GNP) and thus balancing the budget within the decade of the 1980s. Even under the best- case assumptions in the budget, including Congressional approval of specified savings initiatives, total Federal spend- ing-budget and off-budget-over the next five years would recede somewhat from its 25.0 percent claim on GNP in 1983, but would remain at 22.2 percent, far higher than during the 1970s. Under a worst-case path-in which deficits are not re- duced, interest rates do not decline, and economic growth slows-the Administration says that total spending would BUDGET HIGHLIGHTS 0 Budget outlays would rise by 8 percent from 1984 to $925 billion in 1985, with defense spending get- ting almost half of the increase. Receipts would go up by 11 percent to $745 billion. The budget deficit in fiscal 1985 would be reduced to $180 billion from an estimated $184 billion in 1984. * Over the next five yeairs, the proposed policy changes would reduce budget deficits $226 billion below their levels as projected under current law. S Inflation-adjusted domestic spending would be fro- zen at its current level in overall terms. Increases in costs of some programs would be offset by re- ductions elsewhere. No policy changes are envis- aged for social security outlays. N Realignment of budget priorities toward defense, international security, and other national inter- est progiams would continue. N There would be a restoration of the 1971 status quo ante in the structure of domestic and defense/na- tional interest programs in relation to the economy. E Under best-case assumptions, including Congres- sional approval of the 1985 budget proposals, Fed- eral spending over the next five years will fall some- what from its 25.0 percent claim on the economy in 1983, but will remain high (22.2 percent) by his- torical standards. * If prospective deficits are not reduced, interest rates do not decline, and economic growth slows, total spending will rise to 25.5 percent of GNP by 1989. Interest costs alone would amount to 4.4 percent of GNP, as compared to about 2.0 percent in 1980. N The President says that after this year's election, he will submit a plan that will lead to a balanced budget. For 1984, he asked for a bipartisan Congressional team to work with the Administra- tion in developing a downpayment deficit-re- duction program of about $100 billion over three years, as a first step toward balancing the budget. He also asked Congress to initiate constitutional amendments calling for a line-item veto and for a balanced budget. N The optimistic economic, utlook projected for the remainder of the 1980s is not likely to materialize unless further budget savings-beyond those pro- posed in the 1985 budget-are achieved. * The Treasury Department has been asked to com- plete a study by the end of 1984 that would make recommendations for major reform of the Federal tax system. Copyright 1984 by Tax Foundation, Incorporated, One Thomas Circle, N.W., Suite 500, Washington, D.C. 20005 (202) 822-9050