Reagan Gets Ready

By GEORGE J. CHURCH

With the campaign looming, the President unveils his plans for 1984

Peace through strength. Economic growth without inflation. A return to old-fashioned values.

And no bold proposals that might give voters any doubts about keeping Ronald Reagan in the White House for four more years.

The President, of course, will not phrase his State of the Union speech in quite such baldly political terms. But when he steps before a joint session of Congress and national-TV cameras Wednesday night, Reagan is expected to sound the themes he will be repeating throughout the 1984 campaign. His official announcement of his own political plans is scheduled for Sunday night, and Reagan still refuses to confirm publicly what all his aides assume to be as sure as sunrise: he will run for reelection. In any case, the address was drafted, primarily by Reagan, as a political document.

One result is that the speech may be as notable for what it does not say as for what it does. At most, Reagan will announce only cosmetic steps to reduce the federal deficit, now estimated at roughly $185 billion for the 1985 fiscal year. He has ruled out pressing for deep cuts in spending this year: that would only rile voters to no avail, since Congress would reject the cuts anyway. The President also has decided against any significant tax increase this year, and might pledge publicly to oppose any boosts. But he also might calculate that such a vow, while it obviously has political appeal, could backfire if it calls attention to his lack of alternative strategies for stemming the red ink.

Indeed, just about the only headline-catching initiative in the State of the Union speech will be a proposal to put into orbit a permanent space station filled by rotating crews of astronauts. Otherwise, said one speech drafter, "this is not going to be a litany of new programs or a listing of everything that's going on department by department. We told the Cabinet to forget it." Instead, a draft that Reagan sent back to his aides last week, after personally rewriting two-thirds of it, stressed his accomplishments and hopes for the future. One aide summarized it this way: "The President will say, in effect, 'I said hi 1980 that we needed a new beginning. We've made it, but more must be done.' " Specifically, Reagan planned to hit on these themes:

Foreign Policy. The President is set to contend that his military buildup has strengthened the U.S. to the point that it can, with safety, search more actively for accommodations with the Soviet Union. Reagan tried out this new line in a speech last week, softening his rhetoric notably to appeal for a "working relationship" with Moscow. But while campaigning as a peacemaker, Reagan will probably insist that he needs every penny of the 17% increase in military spending that he will request for fiscal 1985.

The Economy. The President intends to dwell at length, and with pride, on the vig or of the recovery from the 1981-82 recession. He will note that unemployment in 1983 fell faster than at any other time since the Korean War, that national production rose about one-third higher than the Administration's own forecast had envisioned, and that the inflation rate was the lowest in a decade. Those accomplishments, he will conclude, set the stage for a long period of noninflationary growth; the Administration is currently predicting 4% a year for the foreseeable future.

Social Issues. As in the 1980 campaign, Reagan plans to present himself as a champion of family virtues. Whether he will bring up in the State of the Union the right-wing agenda of school prayer, anti-abortion legislation and tuition tax credits was uncertain at week's end, but if he does not, he will probably pitch for it in the campaign. Said one top adviser who has no doubts about the President's candidacy: "He is already talking about pressing the social issues more in the second term than he did in the first."

The bad news will follow the State of the Union speech by only seven days. On Feb. 1, Reagan will send his budget to Congress. It will not only show a fiscal-1985 deficit barely below the record $ 195 billion in 1983, but estimate that the red ink will still be flowing at a rate of about $150 billion a year by the end of the decade. Council of Economic Advisers Chairman Martin Feldstein asserted last week that the Administration's rosy forecasts of economic growth would be "appropriate" only if the deficits are sharply reduced.

But any serious White House attack on budget shortfalls will wait until after the election. In the State of the Union address, Reagan intends to repeat his long-held view that deficits must eventually be cut by drastic reductions in Government spending. In the budget, however, he will propose only minor changes that net out to a reduction in planned outlays of a piddling $4 billion, or less than two-thirds of 1 % of nonmilitary spending. Among other things, the Administration has dropped a proposal to make Medicare patients pay more of the early costs of hospitalization in return for Government assumption of all bills after the 60th day. It saw no point in risking the wrath of elderly voters by putting forward a plan that Congress would probably reject.

In debates within the Administration over the speech draft, Feldstein, Office of Management and Budget Director David Stockman and Secretary of Commerce Malcolm Baldrige contended that Reagan should at least renew a proposal he made reluctantly last year for a threeyear, $50 billion tax increase, conditional on congressional approval of deep spending cuts and a string of other "ifs." But Reagan's philosophical convictions make him loath to propose any tax increase any time, and his political sensibilities make him doubly loath to do such a thing in an election year. At one point, aides inserted in a State of the Union draft a plan to appoint a bipartisan commission to make recommendations on how to attack the deficits. But Reagan is leaning against that idea, essentially because he sees no political mileage in it.

Frustration over such defeats drove Stockman to the brink of insubordination. In an interview in FORTUNE, he castigated "dreamers, including some in the Administration," who think the deficit can be sharply reduced by spending cuts. He derided the idea that "there are vast pockets of fraud, waste and abuse out there" that could be eliminated painlessly. The clear implication was that taxes must be raised. Though his comments were reminiscent of those he made to the Atlantic in 1981, which sent him to Reagan's "woodshed" and nearly cost him his job, the Administration this time shrugged off Stockman's views. Said one Cabinet member: "You don't pay much attention to comments from the losing locker room."

Reagan will be taking much heavier flak from Congress, which is also preoccupied by the campaign. On foreign policy, the President may be hard pressed to head off a Senate Foreign Relations Committee resolution that would call for removal of the Marines from Lebanon as early as Feb. 25. The legislators are also certain to reduce the President's military-spending requests.

The deficit will be another focus of controversy, and not all of it will be partisan. Kansas Republican Robert Dole, chairman of the Senate Finance Committee, is planning to bring up again a plan to cut the deficit by $150 billion over three years through a combination of less military spending, slower growth in entitlement programs such as Social Security and Medicare, and major tax increases. In the Democratic-controlled House, Ways and Means Committee Chairman Dan Rostenkowski is willing to support a bill for a tax boost "as high as we can get it."

The propects are, however, that such ambitious congressional efforts will produce little but loud wrangling; they cannot pass without Reagan's support. Says Senate Democratic Leader Robert Byrd of West Virginia: "The President is the one man who can get to the people and explain the need for what is required. He simply won't do that." Indeed, there is some talk in Congress of passing the bare minimum of legislation needed to keep the Government running, then adjourning before the political conventions. That way, lawmakers could spend most of the summer and fall trying to get themselves reelected. Whatever comes of that idea, it underscores the main point of this year's prospects. Formally, the White House and Congress this week will be solemnly contemplating the State of the Union.

Unofficially, but unmistakably, they will be contemplating even more solemnly the state of politics. --By George J. Church.

Reported by David Beckwith and Douglas Brew/ Washington

With reporting by David Beckwith, Douglas Brew