The 1984 Reagan Budget

Earlier this week, Edwin P. Meese III, Counselor to President Reagan, and James Wright (D-Tex). Majority Leader of the House of Representatives, participated in a panel discussion before an audience of over 800 at the Institute of Politics Forum. Following the Forum, Crimson reporter Mary S. Humes interviewed Meese and reporter John D. Solomon spoke with Wright about the Reagan Administration's latest budget proposals and the bill's prospects in the Congress.

The Administration's Proposal

Crimson: How do you think the administration's budget will fare in Congress and what compromises are you prepared to make?

Meese: It's too early to talk about compromises because we're just holding the hearings now. I think that no president ever gets exactly the same budget he sends to Congress, but I think this budget has been carefully worked out. The budget strategy is to accomplish our various objectives of maintaining the social safety net, of protecting the truly needy, maintaining our defense build up at the level that is required, of having essentially the freeze on other programs taken as a whole and developing the strategy of a declining deficit pattern for future years. I think all of these things are being accomplished in this budget and that's why I think it should clear very well.

Crimson: In defense specifically, many congressional leaders are up in arms, as it were about the increased defense requests. What areas do you think they are going to look for cuts in?

Meese: As I said tonight, I think that when they really look at the defense budget and see what's in there and the need for different programs, the needs for funds for military personnel, and funds for readiness and sustainability. I think they are going to be hard pressed to find places where they can cut the defense budget without injuring our defense capabilities.

Crimson: When do you expect the economic recovery to begin, now that it has been pushed back from its original target of the summer of 1982?

Meese: A lot of people feel it has already begun and the various economic indicators for the past several months have shown a trend towards recovery, and I think that particularly the last two months have shown favorable signs. While it's too early to say for sure, I think that yes, the economic recovery has begun.

Crimson: Would you judge interest rates the primary sign of such a recovery, or unemployment rates? Which are you giving priority to?

Meese: They are all priorities. We're working on all of them--you can't just work on one. By having a stable monetary policy we are keeping inflation under control. At the same time, by keeping interest rates down and having them come down further, as we hope they will continue to do, we can further stimulate economic recovery. That in turn solves the problem of unemployment.

Crimson: How does this budget seek to reduce the deficit?

Meese: Basically by the present strategies. The deficit will be lower than for fiscal year '83 and in the future years through a combination of the freeze for fiscal year '84 the overall freeze, the reform of some of the the open-ended spending programs the so-called entitlement programs--and by a stand-by tax to be used in the outyears '86, '87, '88, if it's necessary, in order to get the deficits down.

Crimson: Will the Administration stick by the third year of Reagan's 1981 tax bill?

Meese: Absolutely. That's really critical, particularly to the middle income families who need that money because of the social security taxes which have been going up.

Crimson: Do you think that the House Democrats might be trying to dismantle the third year of the tax bill?

Meese: I think they may try, but I don't think they will succeed.

Crimson: Can you comment on what you foresee for the future of social security?

Meese: I think the social security compromise plan, a bi-partisan plan will provide the necessary a forms to handle the social security problem for the foreseeable future. I think at some future time there may be more wide pread or more extensive structural reforms to the system, but I think this will certainly take care of the immediate future and handle the problem for decades to come.

Crimson: Even with increased military sending the deficit will continue to decrease?

Meese: That's right, it will continue to decrease, and of course military spending, which is very necessary, is a factor that will help in the recovery because the procurement dollars do create jobs -- something in the neighborhood of 35,000 jobs for each billion dollars in procurement money. That will eventually cause an increase in the revenues, just as tax revenues from anyone else who is employed help the deficit.

Crimson: You've mentioned and others in the administration have mentioned that the sharp decline in inflation had been a problem for the deficit.

Meese: It's good news for the people because it means that there is more money to spend and greater purchasing power. It's a problem, as far as the deficit is concerned because it means less revenue.

Crimson: How will this year's budget facilitate the recovery?

Meese: It does show that it's the first year of steadily declining deficits. It is this control of the deficits that will continue to lend confidence to those who are making money-lending decisions. This will keep the interest rates down and will cause them hopefully to come even further, which in turn will help to stimulate the recovery.

Crimson: An issue that is sensitive around college campuses is financial aid, and in particular the recent proposal to have financial aid be contingent upon draft registration. Do you feel that this situation puts an under amount of pressure on Universities to make up for its last financial aid?

Meese: No because I feel that a person who benefits from the taxpayer's in terms of financial aid, also has an obligation to obey the law. And one of the laws that a person has to obey is the law that requires registration for those eighteen years old and over.

Crimson: Are you worried that college might be tempted to get around it by making other funds available?

Meese: Well, if they do then I think they are they are taking from those otherwise eligible students who could use those funds and giving the funds to students who are not obeying the law. And I don't think it would be a very sound policy if they should do that.

Crimson: Do you feel that this is a good way of enforcing draft registration? Some people feel it discriminates against those who are dependent on financial aid for their college education.

Meese: It doesn't at all. Students are getting the benefit in terms of taxpayers' money to finance their education. I think the least they can do is fulfill their responsibility as citizens to obey the law.

Reaction on the Hill

Crimson: How will the Reagan budget fare in the Congress and what primary alteration will you be looking to make?

Wright: No president expects his budget be approved in toto. In this instance more than in any other the old aphorism is true: the President proposes and the Congress disposes. I think we will probably add money to the budget for certain job creating, stimulative enterprises and offer a more active job training program and some initiative to revitalize and re-energize America's industrial base. I believe we will reduce the amount that Mr. Reagan asks for in military expenditures. I think we will either eliminate, reduce, or put a cap on third year tax cut. By doing those things I believe we will make more than enough room for the stimulating kinds of things we would like to do for the economy. In financial aid it has always been our object to support all the financial aid programs. The President's budget request of last year would have drastically reduced financial aid through Pell Grants. It would have done away with the work study program. It would have made graduate students ineligible for student loans. It would have made student loans harder to get and harder to repay. All in all if Congress had accepted that budget for the current fiscal year verbatim, it would have made it significantly harder for some two million young Americans to attend college. We did not accept it, we altered it, we changed it and added money into the supplemental appropriations bill to fill a gap for student assistance. The President vetoed that bill and we overrode the veto. I think we'll do that again.

Crimson: How large a threat is the current federal government deficit and how do you see it being reduced?

Wright: The most obvious thing would be to eliminate the third year of the President's proposed tax cut. I think that the tax cut is inequitable and economically ineffective. It has not stimulated buying power nor has it stimulated investment, therefore I think that is the first and most obvious way in which to reduce the deficit. A second reduction in the deficit could occur by curbing the rate of growth in military spending and holding it, let us say at an arbitrary five percent. If we are able to influence the Federal Reserve Board to bring the real rate of interest back where it belongs we could automatically reduce a substantial portion of the deficit by reducing the amount that we must pay annually on debt service. This year we are paying approximately just a little over $100 billion on debt service on interest to loans. That's $100 billion wasted so far as budget is concerned. It doesn't buy a single skill, it does not pave a single mile of road, it doesn't do anything. If we are able to get interest rates back to levels they were four years ago, it would save $30 billion of the cost of government. Those are three ways. The most obvious way is to get the economy working again. We will never bring the deficit under control until we can get people back to work and paying taxes.

Crimson: What is your outlook for an economic recovery over the next two years?

Wright: I don't believe that economic recovery is like the weather. I don't thing you can just predict from meterological data. I think you must influence them. The chances therefore depend upon the policies we follow. We cannot just sit back and wait for it to happen nor can we continue the policies that have given us the recession.

Crimson: What should America's number one economic priority be?

Wright: To get people off the unemployment roles into productive roles. There should be short range, intermediate range, and long range programs to bring this about. In the short range there should be a federal works jobs program to employ some of those long-term unemployed in useful public works construction. The intermediate and long-term programs should involve job-training and job retraining so as to make the transition possible into more highly technological skills. In addition to that, we need to direct capital investment into modernizing. America's aging industrial plants and machinery so that the American working place could be just as modern and just as efficient as those in Japan or West Germany. Whether it is to be done by tax credits, by government loan guarantees, or by renewed Reconstruction Finance Corporation type operation or some combination of the three remains to be seen.