Of tax cut, budget deficits, and 'magician'; Trend of the economy

Presidents would have a rough time of it as magicians because they can't get the hang of that disappearing act. Every president comes on stage vowing to make the annual budget deficit vanish by the time he exists through the wings. It never happens.

Gerald R. Ford left the nation with a whopping $65.6 billion shortfall in fiscal 1976, still a record for government overspending.

Jimmy Carter, who declared on taking office that Americans equate budget deficits with inflation and government mismanagement, ended up $59 billion in the red with his 1980 effort.

Now it's Ronald Reagan's turn, and for him the issue is crucial. He stakes the credibility of his economic program on balancing the budget by 1984.

People won't blame him for the current 1981 deficit -- estimated at $55.6 billion (but don't be surprised if it comes in higher) -- because that budget was largely shaped by President Carter.

But Americans will hold Mr. Reagan responsible for 1982, the first budget to emerge from a Reagan White House. On the surface, the President is not doing too badly. He whiplashed Congress into cutting $35.2 billion from spending and anticipates a budget deficit of $42.5 billion.

That's the budget the President signed last weekend with 24 pens, a flourish, and a warning at his ranch near Santa Barbara. Americans should focus on the warning.

More spending cuts biting still deeper into cherished government programs will have to be made between now and 1984, says Reagan, if red ink is to vanish in the final year of his first term.

"There is," says White House policy adviser Martin Anderson, "a continuing major effort now under way to make further changes in federal spending."

Behind the President's warning words lie stark economic facts:

* High interest rates are forcing the government to spend a lot more money than had been expected, primarily to finance the national debt. When the US Treasury borrows money to pay government bills, it pays superhigh interest rates to get that money like everyone else.

White House officials estimate the extra spending at $10 billion for fiscal 1982. A senior expert at the Congressional Budget Office says $12 billion to $ 15 billion may be closer.

* Congressional committees are piercing the $704.8 billion spending ceiling for fiscal 1982, as they appropriate money for specific programs.

* If the economy, now in a stall of mild recession, fails to pick up steam, tax revenues will be smaller than the White House foresaw. When the government collects less money, it has to borrow more.

This combination of factors means that the 1982 deficit is going to be a lot higher than $42.5 billion unless spending is further trimmed.

Says Dr. Jack Carlson, chief economist of the National Association of Realtors, "The spending slowdown in fiscal 1982 will not be enough to keep the deficit from again topping $50 billion."

Even under the best of scenarios (in which 1982 works as originally expected) , the White House Office of Management and Budget foresees net additional spending cuts of $30 billion in 1983 and $44 billion in 1984.

Now comes the need for the President to go to the mat again with Congress on more spending cuts for 1982, if outlays and deficit are to be held at levels agreed upon just a few weeks ago.

Watching the whole process closely will be the financial markets, made up of money managers, institutional investors, and speculators, weighing what the future will bring.

If money men conclude that deficits will continue to run high and that a balanced budget is out of reach, interest rates are unlikely to subside, at least very much. The credibility of the President's program will be cast in doubt.

Thus Reagan is under enourmous pressure to hold the 1982 deficit to $42.5 billion, even if this involves another bitter struggle with Congress over spending when the President and legislators return to Washington.