Budgets Show Key Failure Under GOP : Deficit: Government spending has gone up, not down, as politicians fail to accept reforms affecting anyone but the poor.

On Feb. 18, 1981, in a huge auditorium jammed with television cameras and White House officials, then-Budget Director David A. Stockman unveiled the first spending plan of the new Republican era, promising to cut taxes, increase defense outlays and--by cutting overall spending--close the federal deficit by 1984.

Twelve years later, in a small room with a table full of reporters and minimal fanfare, Stockman’s successor, Richard G. Darman, unveiled the era’s final spending plan--a document forecasting enormous deficits as far as the eye can see and proclaiming that “the budget is on an unsustainable course that will have to be corrected.”

Taken together, the two documents paint a picture of how a decade-plus of Republican rule has affected the federal government’s finances. It is a picture that includes some substantial political successes but at least one enormous failure.

Presidents Ronald Reagan and George Bush succeeded in increasing the share of the nation’s income allocated to defense. And they cut taxes overall and rewarded their party’s core supporters by shifting a sizable share of the remaining tax burden away from upper-income taxpayers.

But, as Bush’s final budget shows, they failed utterly in attempting to cut total government spending. Indeed, as the Republican era draws to a close, the government is spending more of the nation’s income--tens of billions of dollars more--than when the GOP tenure began.

The reason is simple and, for President-elect Bill Clinton, deeply challenging. “The political system has accepted the reforms that affect the poor,” Darman said, referring to cuts in welfare and other benefit programs for the needy. “It has not accepted the reforms that affect the rich.

“Nor, more importantly, has it accepted reforms, by and large, that affect the broad middle and that is half the budget,” he said. “Where you’ve got over 60 million adults who are beneficiaries of broad middle-class entitlement programs, that’s a lot of voters.”

Darman was referring to the rapid growth of mandatory spending programs such as Social Security and Medicare, which provide benefits to all elderly Americans, rich as well as poor. Past attempts to impose limits on entitlement spending have generated intense political opposition.

Now the budget is about to become Clinton’s problem, and his ability to achieve his goals of reviving economic growth and ending Washington gridlock will depend in large part on whether he can succeed where Darman’s bosses failed.

Clinton rhetorically accepted that challenge Wednesday. “With today’s release by the Office of Management and Budget of the new deficit projections, we now can see the full magnitude of the debt we inherit and the challenge we must confront,” he said in a statement released in Little Rock, Ark. “This sounds the final warning bell. This endless pattern of rising deficits must stop.”

So far, however, Clinton has shied away from actions that would, as Darman says, “affect the broad middle”--either by increasing taxes or cutting benefit programs. But the comparison of the first Reagan and last Bush budgets show that he faces few alternatives if the goal of reducing the deficit is to be accomplished.

When Reagan took over, the federal government spent slightly more than 22% of gross domestic product--the sum of all goods and services produced in the country each year. Federal taxes and fees took in 19.6% of the GDP, leaving a gap--the deficit--of about $50 billion, or 2.7% of the total economy.

Twelve years later, the government spends nearly 24% of GDP. But revenues have been cut to 18.6%, leaving a gap of more than $320 billion, or about 5.3% of the total economic pie.

Those numbers show in the simplest terms why the deficit has become a chronic problem: Taxes have gone down and spending has not. But they mask a series of changes involving where the money goes, and who provides it, that have shaped the political debates since Reagan’s election.

Overall, the share of federal revenues derived from income taxes has gone down, while the percentage from Social Security taxes has gone up. The result has been the shifting of billions of dollars of tax liability away from upper-income taxpayers and toward middle- and lower-income wage earners--a shift that became a key issue in Bill Clinton’s presidential campaign.

On the spending side, the Reagan and Bush administrations managed to hold down some programs, primarily, as Darman noted, those whose benefits go largely to poor people. Community and regional development programs, for example, shrank steadily in the Republican years, from $7.3 billion when Reagan started to $7 billion in Bush’s final year--a major cut when inflation is taken into account. Clinton has proposed increased spending on such programs.

By contrast, Reagan was hugely successful in his goal of increasing defense spending. His first budget provided $157 billion for national defense, or about 23% of all federal spending. In the next several years, defense spending rose steadily, peaking at slightly more than $300 billion, or 28% of all federal spending, at the end of Reagan’s tenure.

The Pentagon, however, no longer is driving up the deficit. Under Bush, defense spending has slowly eased back down. Indeed, in Bush’s final year, defense accounts for less than one-fifth of total federal spending--lower than in any year since before World War II.

Income, Spending Out of Balance

President Bush’s final budget projects that federal spending will continue to outstrip revenues for the foreseeable future. These figures are in billions of dollars:

1992 1993 1994 1995 1996 1997 1998 Receipts 1,092 1,148 1,230 1,306 1,379 1,440 1,523 Outlays 1,382 1,475 1,523 1,578 1,645 1,745 1,843 Deficit 290 327 292 272 266 305 320

Figures based on consensus estimates for future economic growth and assume no changes in current levels of discretionary program funding.

Source: Office of Management and Budget