The U.S. economic recovery is now well established, but huge federal budget deficits remain a source of growing concern to financial experts. Anxiety over the spiralling deficitforecast to reach well over $200 billion this year—is most often expressed by opponents of the Reagan administration’s fiscal and monetary policies. But Martin Feldstein, the highly respected chairman of the president’s Council of Economic Advisers, has angered fellow Reagan team members in recent weeks by publicly voicing alarm over the ballooning debt and calling for tax increases to reduce it, despite the White House’s reluctance to invoke such measures until after the 1984 election. Last week, with the consent of senior aides, White House press secretary Larry Speakes mounted a rare and direct public attack. Said Speakes: “Once he [the president] makes the decision, then he would like his advisers to speak publicly in support of his decision, or not speak at all.” Told that the Harvard economist was attending a White House policy luncheon, Speakes added, “Maybe he won’t make it to dessert.”
Feldstein, nicknamed Dr. Gloom by his detractors, said that he was confused by Speakes’s reaction, and he declared that he will remain at his post until his scheduled departure next summer. Feldstein insists that tax increases are necessary to reduce the deficit. Otherwise, he says, the treasury’s borrowing needs would compete with the private sector in the capital markets, pushing interest rates higher and aborting the recovery. Feldstein also believes that his views are entirely consistent with the president’s because Reagan’s January budget statement to Congress proposed modest tax increases in 1984 and 1985 and contingency taxes for three years afterward. But other key administration officials have recently rejected new taxes as a solution to the looming deficit crunch.
With only 10 months before his planned return to teaching at Harvard, Feldstein is said to be more concerned about loyalty to academic integrity than to the administration’s political needs. As a result, the feeling inside the White House is that Feldstein, having already lost the policy debate, should either support it, remain silent or resign. Last week Dr. Gloom seemed determined to ride out the current storm. But frozen out of the key decision-making process, Feldstein may still decide that a resignation based on principle is a better strategy for everyone.
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