Pie in The Sky

As the 100th Congress begins a new year of work, it immediately faces an economic dilemma that is agonizingly old: what to do about the monstrous and dangerous U.S. deficit. Despite all efforts in years past to control it, the gap between federal spending and revenues grew to a record $221 billion in fiscal 1986. This week, as President Reagan sends Congress his 1988 budget, the annual battle over the deficit gets under way. Behind the barrage of statistics and beyond the parade of partisan interest groups fighting for bigger shares of the federal pie, the issue at stake is, quite simply, the well-being of the U.S. economy. The outcome of the budgetary wrangles could have a profound effect on taxes and take-home pay, interest rates and the cost of a house, the health of the stock market and the value of the dollar.

In many ways Reagan's 1988 budget seems like a wishful blueprint for a miracle. The President proposes to slash the deficit to $108 billion, the 1988 target prescribed by the Gramm-Rudman law, without a tax increase and while still boosting defense spending by 3%, after adjustment for inflation. The deficit reduction would come entirely through further cuts in social and other nondefense spending, along with short-term expedients like sales of Government assets. But private economists are almost universally doubtful that the formula can work. Charles Schultze, a Brookings Institution scholar who was President Carter's chief economic adviser, sees "no way" that the 1988 Gramm-Rudman goal can be met without a tax increase.

As in the past few years, Congress is likely to reduce the President's defense request and insist on fewer cuts in social programs. Since the Democrats have taken control of the Senate and already command the House, Reagan will find it more difficult than ever to get a budget that even remotely resembles his original plan. Though James Miller, Director of the Office of Management and Budget, maintains that the President's budget is "eminently doable," critics are labeling it "dead on departure."

Congress is still weary from its struggle with the 1987 budget. In the end the lawmakers decided to let federal spending pass the once inconceivable $1 trillion mark this year. Their final spending bill anticipated a deficit of $154 billion, as permitted by Gramm-Rudman. But the Congressional Budget Office now projects a 1987 deficit of $174.5 billion, and some private economists say it may go as high as $190 billion.

For 1988 Reagan has proposed spending $1.02 trillion against expected revenues of only $916 billion. He thus becomes the first President to send a trillion dollar budget to Capitol Hill. His proposals call for the deficit to be cut to the $108 billion Gramm-Rudman target through a combination of $42 billion in spending reductions and revenue increases. Some $20 billion of that would be trimmed from domestic programs, including mass-transit aid, housing assistance and farm subsidies. Social Security, as usual, remains untouchable.