Federal spending scarcely can be cut at all this fiscal year, and by only $10 billion to $15 billion next year, according to a senior economist in the Federal Reserve Bank of New York. This is far less than the administration hopes to cut from the budget. In just two weeks it is due to reveal its economic program of tax and spending cuts.
Both Treasury Secretary Donald T. Regan and Office of Management and Budget Director David A. Stockman have promised deep cuts in spending in the package. But James R. Capra, formerly with the Congressional Budget Office, says in an article published today in the quarterly review of the New York Fed that 1982 spending cuts of significantly more than $15 billion "would take an extraordinary effort on the part of the new administration and a degree of cooperation by the Congress that is rarely seen."
He believes that attempts to shave the budget significantly in the current fiscal year "could very well end up a wasted effort" and make it harder to cut spending in later years. During the election campaign and shortly afterwards, Regan aids spoke of cutting spending by $13 billion in fiscal 1981 and by up to $40 billion or $50 billion in fiscal 1982.
The OMB has circulated a booklet listing possible cuts which congressional sources yesterday labeled as tough but not impossible. However, no figure has been agreed on for the total. Regan and Stockman told a Senate panel last week that tax and spending cuts should go hand in hand, although not necessarily dollar for dollar.
Capra says that spending cuts equal to the $35 billion revenue loss from one year of the administration's proposed cuts in personal tax rates probably only would be feasible by 1983. He also cautions that "unless the Congress begins immediately to consider and to act on numerous changes in current laws, the chances for any spending cuts for 1982 may slip away and the opportunities for reducing spending growth in 1983 and beyond could be severely cicumscribed."
He examines in detail the options for spending cuts this year and next, concluding that the "bleak prospects for changes that would reduce 1981 outlays need to be emphasized" although one-time and "cosmetic" changes could be made to total near $15 billion if swiftly enacted.
Capra projects 1982 spending on unchanged policies at $760 billion. He assumes that there are then cuts in particular areas of Social Security payments totalling $730 million in 1982 and rising to $3.125 billion by fiscal 1983, in Medicare and Medicaid totaling perhaps $1 billion in 1982, in unemployment benefits of $2.4 billion falling to $1.3 billion by 1983 and in food stamps of $700 million in 1982 rising to $1 billion by 1983.
He assumes there could be a total of $5.9 billion saved in 1982 on benefit programs, going up to $8.5 billion by the following year. On top of this he projects cuts of $3 billion in other grants to state and local governments, such as those for highways or special public service jobs during economic slowdown, and $2.9 billion on other miscellaneous federal operations.
The $12 billion or so cut from the 1982 budget in this way would represent 2 percent of nondefense spending. Between 80 percent and 90 percent of the reductions could be achieved only with changes in the law, Capra says. The program he considers "could occupy most of the time of the first session of the 97th Congress," leaving little time for bigger spending cuts or other legislative business.
Meanwhile, the Commerce Department yesterday reported a 10 percent drop in construction spending for 1980 as a whole, after taking inflation into account. The slump in the housing market in the middle of last year was so severe that even the subsequent recovery could not wipe out the overall drop in construction. Last month spending went up by 3.7 percent, after accounting for inflation.