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Reagan's Budget Based on Healthy Economic Growth

February 19, 1988|TOM REDBURN | Times Staff Writer

WASHINGTON — President Reagan, leaving to his successor many of the harsh choices required to put the federal government's budgetary house in order, Thursday unveiled a $1.1-trillion spending blueprint that calls for a wide variety of politically sensitive defense cuts but increases outlays for education, scientific research and the battle against AIDS.

If the economy remains in healthy shape, Reagan predicted that his budget would reduce the federal deficit to $129.5 billion in the fiscal year that begins next Oct. 1, down modestly from an estimated $146.7 billion for the current fiscal year.

Abandoning his confrontational approach with Congress, Reagan's budget for fiscal 1989 conforms to a broad agreement on government priorities that was forged by the White House and lawmakers last November in the wake of the stock market crash.

'Give and Take'

The President acknowledged that his budget, which includes some minor tax increases that Congress has already enacted, "does not fully reflect my priorities" but represents "give and take on all sides.

"In presenting this budget, I am keeping my end of the bargain," Reagan said in submitting what, for all practical purposes, is his last budget. "I call upon Congress to uphold its end."

But Congress and the White House, by avoiding dealing with fundamental imbalances in the federal budget, are hoping to postpone the task of repairing any damage caused by a national debt that will soar from about $1 trillion in 1980 to almost $2.6 trillion by the time Reagan leaves office next January.

Under the tax and spending policies proposed by Reagan, the budget still would be $23 billion in deficit in 1993. And even reduction to that level would require that the nation's current economic expansion last an unprecedented 11 years.

The Administration proudly points to the annual 2.6% economic growth rate since 1980 and a five-year economic expansion that already is the longest of any in peacetime. Yet it is relying on another six years of economic growth averaging more than 3% a year just to reach a $23-billion deficit in 1993.

"The underlying problem is that neither the President's budget nor (the White House-Congress) summit agreement directly confronts the deficit issue," said Rep. Leon E. Panetta (D-Monterey), who is expected to become chairman of the House Budget Committee next year. "Instead, they tiptoe around it.

Sees 'No Choice'

"But the next President and the next Congress will have no choice but to act," Panetta said. "Without action, continuing deficits will deplete the resources we need to take on national priorities."

Because of the previous agreement, Reagan's budget sparked few political fireworks on Capitol Hill--a sharp contrast to previous White House spending plans, which lawmakers were fond of declaring "dead on arrival."

"It appears the President's budget meets the guidelines laid down in the summit last November. . . " said House Budget Committee Chairman William H. Gray III (D-Pa.). "There are some better domestic priorities than in the past. However, there still are some problem areas, such as the willingness to build more houses in space as opposed to housing here on Earth."

Senate Budget Committee Chairman Lawton Chiles (D-Fla.), after leaving a White House meeting with Reagan, told reporters: "I think it's a good-faith budget. It looks like it meets the (budget) summit agreements. It's right at the targets."

The two-year, $76-billion budget reduction pact that Reagan struck with Congress last November set a limit of $299.5 billion to fund the military in 1989--only $7.5 billion above this year's level--and imposed modest cuts in domestic programs. It limited tax increases for next year to the $14 billion that Congress approved just before adjourning last December.

The aim of the pact was to demonstrate to investors shaken by the sudden stock market collapse that the White House and Congress could work together to avoid the indiscriminate spending cuts that otherwise would have been required by the Gramm-Rudman budget-balancing law.

Growth Rate Optimism

To avoid a repeat of last year's endless wrangling over the budget, the White House and Congress are counting on the economy to maintain the 2.4% growth rate that the Administration projected for this year. Yet some analysts, worried about recent weakness in consumer spending and in housing, believe that the nation will be lucky to achieve such growth.

Under Gramm-Rudman's convoluted accounting rules, which do not count certain one-time budget savings, the White House expects to barely meet the law's allowable deficit ceiling of $146 billion--$10 billion above the official target of $136 billion. The White House projects that its budget will come in just $3.3 billion under the limit. The one-time savings include sales of government assets such as real estate and loans.

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