The $400 billion-plus budget President Ford sends to Congress this morning is more than an agenda of spending and taxing for the nation. It is an exercise in crystal-ball gazing 18 months into the future.
Past presidential budgets sometimes have presaged the future well, sometimes poorly, and usually with a mixed degree of success.
The budget President Ford sent Congress last year was uncannily accurate on some points and wide of the mark on others.
Last year Ford predicted:
An unemployment rate that would average 7.7 per cent for calendar year 1976. It did.
A $43 billion deficit in fiscal 1977, which will end Sept. 30. But administration officials and congressional budget watchers indicate the figure will be closer to $60 billion.
Consumer prices 5.9 per cent higher in December, 1976, than in December, 1975. Although the final figures will not be released by the Labor Department until Wednesday, it appears that the inflation figure will be closer to 4.9 per cent than 5.9 per cent.
Government spending at $394.2 billion in the federal accounting (or fisal) year 1977 (which runs from Oct. 1, 1976, until next Sept. 30). It is still too early to tell if he will be right, but the Congressional Budget Office said last week it expects federal spending to be about $409 billion to $411 billion in fiscal 1977, and President-elect Jimmy Carter wants to add to that.
Economic growth in the neighborhood of 6.2 per cent. The Commerce Department will not release final 1976 estimates until Tuesday, but it appears the Ford prediction will be good.
Federal budgets, like household budgets, are set up as a guide in the allocation of resources to reach certain goals. Like the consumer who cuts out steak to make ends meet or free more of a family's resources to buy a car, the federal budget makers can trim or eliminate spending on one program to increase or begin spending on another.
A catasrophic illness might force a family to scrap its budget and borrow heavily. A recession can force the government to do the same, as it did in 1975.
Because the federal budget is printed in numbers, it carries an air of precision it does not deserve. As an examination of President Ford's 1976 projections showed, that seeming precision often evaporates over 12 to 18 months.
If the spending and taxing projections Ford gives Congress this morning in his third and final budget are to be realized when fiscal year 1978 ends on Sept. 30, 1978, his forecasts about the future of the economy, will have to come true.
And in a Catch 22 type of situation, for all the economic forecasts to come true, the spending and taxing projections also will have to be very close to the mark.
Since Congress will assert its priorities, rejecting some of the policies prescribed by Ford, there is virtually a guarantee that all the neatly interlocked forecasts will unravel somewhat over the next 12 to 18 months.
Rudolph G. Penner, assistant director of the Office of Management and Budget for economic policy, notes that such things as deficit estimates are extremely sensitive to even slight errors in economic forecasts.
In an economy that produces $1.8 billion in goods and services each year, a 1 percentage point forecast error would be $18 billion, he noted. Because the government is so big, that $18 billion error would affect the federal deficit by about $4 billion or $5 billion, Penner said.
"If your deficit is $50 billion, a 1 per cent forecasting error, which is trivial as forecasts go, is almost a 10 per cent error in the deficit estimate," Penner said.
Furthermore, budgets are not just accounting devices, but political documents as well. So when President Ford included billions of dollars in spending cuts in his projections last year - cuts he knew Congress would not make - that threw his projections off from the start.
If predicting the budget in the near-term is difficult, it is nearly impossible when the projections run for three or five years.
Almost every budget document prepared in recent years sees black ink in the budget five years ahead and red ink in the one a year ahead. That happens because projections of federal outlays never rise as fast as projections of federal income. Wage increases that merely keep pace with inflation push people into ever higher tax brackets, which means that tax revenue rises faster than inflation.
Economists call the surplus that occurs as revenue increases faster than spending the "fiscal dividend." It was this type of fiscal dividend that President-elect Jimmy Carter said would be around in 1980 or 1981 so he could initiate new programs and still balance the budget.
But fiscal dividends, like mirages, disappear when approached.
The President and the Congress seem to always find ways to boost spending faster than projections. And Congress invariably lowers taxes. Since 1951, personal income taxes as a percentage of total personal income have remained constant at about 11 per cent because of several tax reductions.
In 1973, the 1978 budget looked as if it would be in surplus. In 1977, the 1981 budget probably looks as if it will be in the black as well. Just as 1977 gives the country a different perspective on that 1978 surplus, the hefty surplus foreseen for 1981 may well vanish by 1980.