TIME: Almanac 1993/TIME Almanac 1993.iso/time/caps/81/81.34

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                f├)+                          ╦=                            ╚December 21, 1981

NATION

Caught in a Riptide of Red Ink


Despite Reagan's victories, his budget is out to sea


Just as Ronald Reagan was persuading a recalcitrant Congress to
make one more $4 billion cut from fiscal 1982 spending, a sour
note was sounded. It was not another anguished cry from those
objecting to the pain of the budget knife, although that
crescendoing chorus was heard too last week, but a warning from
his own economic lieutenants. The economic crusade, they said,
suddenly seemed seriously off course, inexorably headed toward
the largest deficits in the country's history.

According to the projections brought to the Oval Office, the
deficit for fiscal 1982 may reach $109.1 billion. This would
dwarf the previous record of $66 billion under President Ford
in 1976, which was the last full fiscal year during a Republican
Administration. Worse yet, Reagan's package of $283 billion of
tax reductions and $130 billion in budget cuts, combined with
the lingering effects of the current recession, threatened to
produce a total deficit of $423 billion over the next three
years. When he first proposed his radical program last
February, Reagan said that the plan's supply-side stimulus would
result in about a $40 billion deficit for 1982 and a small
surplus by 1984.

Murray Weidenbaum, chairman of the Council of Economic
Advisers, joined with Budget Director David Stockman to counter
Treasury Secretary Donald Regan's objection to using more
pessimistic forecasts of economic growth in preparing the
projections. Then Weidenbaum and other Administration officials
tried, somewhat implausibly, to downplay the traditional
Republican view that deficits lead to spiraling prices. "There
is no direct or indirect connection between deficits and
inflation,"  CEA Member William Niskanen told a stunned audience
at a seminar sponsored by the conservative American Enterprise
Institute. The Administration's new contention that deficits
need not inhibit business expansion seems shaky at best. The
tax cuts were designed to provide a pool of private savings that
could be used for new investments. But the Government borrowing
necessary to fund the projected deficits threatens to soak up
every nickel and more.

Democrats ridiculed the Republican revisionism. Said House
Budget Committee Chairman Jim Jones:  "If someone in the Carter
Administration had said that cumulative three-year deficits of
$400 billion don't matter, Republicans would have called for
his impeachment."  In fact, Republican Congressman Trent Lott
of Mississippi almost did just that last week, calling on the
White House to demand that Niskanen be fired. And the
Republican Senate passed a resolution asking the President to
present a plan to balance the budget by 1984. The White House
quickly announced that the opinions expressed by the top
economic advisers were not those of the President. As Reagan
said in his first economic speech last February: "We know now
that inflation results form all that deficit spending."

Not much can now be done to alleviate the 1982 deficit. The
final battle on spending limits was concluded last week when
Congress made one last $4 billion trim. In doing so, Congress
settled a dispute with the President over roughly $2 billion in
controversial cuts, which had caused Reagan to veto a spending
resolution last month. Democrat Sidney Yates of Illinois could
not resist taunting House Republicans:  "Instead of having a
deficit of $109 billion, you'd have a deficit of $107.5
billion."  The new "continuing resolution" allows the Government
to operate while the final appropriations bills are being
written.

Partly to discomfit the victorious Republicans, the House
Democratic leadership forced a separate vote on foreign aid,
which has been funded for the past three years by continuing
legislation designed to avert a showdown on the issue. Reagan
had to line up support from a majority of Republicans, who
generally vote overwhelmingly against foreign aid, to get the
bill passed.

The struggle over the fiscal 1983 budget, the first version of
which is due to be submitted next month, is already under way.
Stockman has been urging draconian cuts in domestic programs,
perhaps so Reagan can later ask for lesser, though still hefty,
reductions without seeming hardhearted. Cabinet officials have
begun to declare their dismay publicly and most are taking their
protests to the President instead of acquiescing to Stockman's
demands. Congress also is almost certain to balk. Says Joseph
McDade of Pennsylvania, a savvy Republican on the House
Appropriations Committee:  "We'll not see a repeat next year of
what we saw this year."

For the moment, the White House plans to forge ahead with
efforts to find further feasible cuts in domestic programs.
Many of the President's frustrated top advisers, including
Stockman and Chief of Staff James Baker, hope that once Reagan
has slashed as deeply as he can, he will reconsider some of the
economic options he has to this point adamantly ruled out. One
would be raising taxes, perhaps by proposing new excises on
cigarettes and liquor, or by accompanying the deregulation of
natural gas with a windfall profits levy that could product $20
billion a year. New York Congressman Jack Kemp, a firm believer
in the tax reductions, charges that his lapsed protege,
Stockman, deliberately concocted the frightening deficit
forecasts and made them public in order to necessitate such
action. Another route would be for Reagan to seek a palatable
way to curtail the inflation-based increases in entitlement
programs, although he will find it all but politically
impossible to touch the granddaddy of them all, Social Security.
Finally, he may be forced to revoke the dispensation he has
granted to the Pentagon, which last week almost casually
requested $6 billion more for 1983 to speed delivery of two
nuclear aircraft carriers. The increase in defense spending
over five years requested by Reagan is $181 billion.

The riptide of red ink and the resistance to further domestic
cuts make it clear that Reagan can hardly dent the deficits
merely by cutting social spending. It is becoming evident that
his goal of reducing taxes, raising military spending and
balancing the budget is no less difficult to achieve than many
of his sharpest critics claimed.

--By Walter Isaacson. Reported by David Beckwith and Neil
MacNeil/Washington