At a budget meeting early in his administration, President Reagan pondered paying for part of the defense buildup by selling off other assets. "I wonder how much we could get for Rhode Island?" he joked.

Well, maybe not Rhode Island. But how about Nevada? The feds own almost all the land there.

As every good business manager knows, rather than go further into debt it often makes sense to finance new acquisitions by selling off old, less productive assets.

Well, Congress has racked up trillions in new spending recently, heaping up long-term debt to buy government assets, from General Motors to new roads and bridges. This debt will be a huge financial burden on our children and grandchildren.

Rather than saddle future generations with higher taxes, why not pay off some of this debt by selling off something the government has plenty of - land.

Uncle Sam owns almost 700 million acres of land - roughly a million square miles. That's four times the area of California and New York combined, and one-third of the entire country. This federal footprint is heavily concentrated in the West. Uncle Sam owns 85 percent of Nevada, 70 percent of Alaska and nearly half of California.

By contrast only 0.4 percent of Rhode Island is federally owned. Mr. Reagan picked the wrong state to auction.

Most federal land holdings fall into three broad categories: grazing land, where ranchers have access rights for their animals; timberland, where trees can be harvested privately; and wilderness and wildlife preserves.

In addition, the government owns just under a half-million buildings, with about 3 billion square feet of office space (about 10 square feet for every American).

How much is all this worth?

It's hard to say, since the government refuses to place a commercial value on its western land holdings. Still, using a benchmark of $525 per acre, as some do, selling off just one third of total federal holdings would bring in about $100 billion.

According to the Treasury's Financial Statement of the United States, the commercial value of buildings and related land owned by the government is nearly $400 billion, roughly half of which is defense-related. Much of this is hardly a candidate for sale. But the government routinely overlooks the commercial value of its own property. It does little to figure out how to sell and trade property to meet its office needs while generating sales revenue.

Taxpayers would be better served if Uncle Sam spun off much of his holdings into regional real estate investment trusts, partly sold off to commercial investors. These trusts would manage the government's facility needs while generating sales revenue for underused properties.

What about western land? Proposals to sell that are taken by some to be akin to an attack on Smokey the Bear. But that reaction overlooks many problems with excessive public ownership.

The major problem is that ownership by "the public" actually means no direct ownership by anyone. So nobody, including government agencies, has a real incentive to manage lands carefully to enhance their long-term value. For instance, ranchers can buy permits to graze their cattle on federal land, but because they don't own it they are reluctant to invest their own money to improve the land. Just like a tenant doesn't have much incentive to maintain his landlord's apartment.

That's why market-oriented resource economists like John Baden and Richard Stroup have long argued that novel forms of private ownership would improve natural resources while bringing in money to pay down debt. They point to examples of private fish streams in Scotland and private wildlife management in parts of Africa as successful models.

In the U.S., environmental organizations like the Audubon Society also have a long history of owning land. As owners, these organizations have a strong incentive to permit careful use of their land, such as allowing oil and other mineral exploration, to raise revenue to pay for enhancements and to acquire other land.

So while much western land could and should be sold to private investors, as it was in the east and Midwest many years ago, some more environmentally sensitive land could be sold to joint ventures headed up by environmental organizations. The result: money to pay down debt together with better managed land.

The federal budget looks increasingly like an R-rated horror movie, where Americans under 18 don't get to see the accumulating debt in case they get nightmares. Any lawmaker with fiscal integrity should be trying to stop the wave of debt. The next step is to roll it back. And Congress could get things rolling the right way by selling federal land - in ways that produce better management as well as raise cash.

Stuart M. Butler, Ph.D., is Vice President for Domestic and Economic Policy Studies at The Heritage Foundation.