President Ford sent Congress his valedictory budget yesterday, projecting massive tax relief and expenditure reductions over the next five years as the right way to use budget surpluses reaching $70 billion in fiscal 1982.
The Ford budget, a philosophical statement of the need to reduce the size of government, thus laid down a clear challenge to President-elect Jimmy Carter's announced intention of using such fiscal surpluses for expanded federal programs.
Ford estimated expenditures for fiscal 1978 at $440 billion and receipts at $393 billion, leaving a deficit of $47 billion. Spending would rise to $466 billion in fiscal 1979, but receipts would soar to $454.4 billion, shaving the deficit to $11.6 billion.
The general theme of Ford's budget is a limitation on the growth of programs such as health, welfare and food stamps - although such social programs are, by far, the biggest component of the budget - and to put new stress on defense, energy, research and development.
Included in the budget is a list of 101 proposed "restraints and terminations" that would cut the fiscal 1978 budget by $12.4 billion and the fiscal 1979 budget by $22.4 billion. Most of them have been proposed, unsuccessfully, by Ford in earlier budgets.
His latest effort triggered caustic comment from House Speaker Thomas P (Tip) O'Neill. The Massachusetts Democrat said Ford "is a lame-duck President, and nobody pays too much attention to what a lame-duck President has to say."
Sen. Edmund S. Muskie (D-Maine) and Rep. Robert N. Giaimo (D-Conn.), chairmen respectively of the Senate and House Budget Committees, criticized the proposals to cut back social programs. Elsewhere on Capitol Hill, the Ford budget was almost totally ignored.
Ford raised the deficit estimate for the current fiscal year, originally forecast at $43 billion a year ago, to $57.2 billion. Carter's Economic Council chairman-designate, Charles L. Schultze, said the impact of the stimulus program planned by the new administration would probably boost the deficit to $70 billion, "give or take a few billion on either side."
Schultze said in an interview that the projections by Ford budget makers of lower deficits, especially for fiscal 1979, were unrealistic. "They can't get from here to there with that budget," he said. "There is more economic growth (predicted) than they can get with their program."
Ford administration officials were more optimistic about short-term economic prospects than Schultze and other Carter advisers. Ford's Economic Council chairman, Alan Greenspan, told a press conference last weekend that there has recently been a "definite acceleration of economic activity" continuing into 1977.
The budget assumes that the gross national product, the total value of goods and services produced by U.S. citizens, will increase 11 per cent in calendar 1977 to $1,880 billion. The real growth rate would be 5.2 per cent - about the same as now forecast by Carter - with consumer price inflation dropping from 5.7 to 5.1 per cent, and unemployment falling from 7.7 per cent to 7.3 per cent.
In effect, the Ford document concedes the validity of Carter's claim that there will be a substantial fiscal "dividend" by 1981 which could be used to finance additional federal programs and still allow a balanced federal budget.
Carter and his economists have estimated the dividend at about $60 billion. Ford argues that it should go back to the taxpayers instead of being spent by the government in Washington.
"For too long," his budget message said, "government has presumed it is 'entitled' to the additional tax revenue generated as inflation and increases in real income push taxpayers into higher tax brackets. We need to reverse this presumption."
Yet, the Ford message also acknowledged that "over the past two decades, legislated tax reductions have offset implicit increases of this nature." In effect, Ford proposed a re-emphasis of the tax-cutting process to the point where taxes through 1982 would be limited to the overall effective rates paid this year.
He repeated his call of last year for a 7 per cent limit in the annual rise in medicare hospital disbursements and a freeze on physicians' charges under Medicare, which gives benefits to people over 64.
These and shrinkages in related programs would cut $2.5 billion from Medicare-Medicaid spending in fiscal 1978 and $7 billion in fiscal 1979. Medicaid gives benefits to the poor.
The President's proposed curtailment of the food stamp program, mainly by tightening eligibility standards, would cut the fiscal 1977 budget by $862 million, the fiscal 1978 budget by $882 million, and the fiscal 1979 budget by $909 million.
His proposal to replace 15 separate child nutrition programs with a single block grant to the states would cut the 1978 budget by $1.2 billion and the fiscal 1979 program by $1.4 billion.
These and other reductions that require major legislative action add up to $7.7 billion in fiscal 1978 and $14.1 billion in fiscal 19798.
The President also recommended phasing out public service employment programs, instead of expanding them as Carter proposes, and he urged the reduction of unemployment benefits from 65 weeks to the more traditional figure of 39 weeks.
Schultze pointed out that those two items alone would add $3 billion to fiscal 1978 spending and deficit figures.
A Carter spokesman said, "we will not assume that every Ford proposed cut is political. Doubtless, we will accept some of them." But as a rough guess, he suggested that $9 billion of the $12.4 billion in reductions for fiscal 1978 would not be acceptable. These are largely in the health-welfare area.
Ford acknowledged that he was unable to fulfill a promise he made last year that he would submit a balanced budget for fiscal 1979. He said to do so would have required scrapping a portion of the "immediate tax relief" he feels is necessary or acceptance of cutbacks that are unwarranted.
The $47 billion deficit projected for fiscal 1978 makes an unbroken string of eight for the Nixon-Ford years, beginning with President Nixon's first full budget for fiscal 1971, which showed a $23 billion deficit. The cumulative red ink total over that period, including an extra three-month "transition quarter" from July to October last year, is $294.6 billion.
Save for his approval of a federal pay raise for members of Congress, federal judges, and senior officials in the executive branch, there were few initiatives and no surprises in Ford's budget.
Yet one calculation - which doesn't affect the regular budget - is likely to prove controversial: Ford included a new estimate of the definition of full employment. It used to be a rate of 4 per cent unemployment. But a new study by the Council of Economic Advisers raises the figure to 4.9 per cent unemployment.
This is the level that the Ford administration says is the lowest that can be achieved without creating inflation, a declaration that is likely to be challenged vigorously by liberal Democrats.
As has been true for about a decade, the budget is dominated by benefit payments to individuals, up $13 billion to $181.3 billion, or 41 per cent of the total budget, including $9.1 billion in military retirement pay.
There is a large increase - $12.3 billion - budgeted for the Pentagon in fiscal 1978, which starts Oct. 1, followed by another $11.5 billion in fiscal 1979, carrying out Ford's belief that defense spending must be allowed to grow in real terms.
At $112.3 billion for fiscal 1978, defense spending is 25.5 per cent of the budget, and would grow to a 28.5 per cent share in 1982, while payments to individuals will be almost static.
The defense budget, according to James T. Lynn, director of the Office of Management and Budget, "assumes we will have a successful conclusion to the SALT talks (Strategic Arms Limitation Talks with the Soviet Union) in the course of this year. It is possible, if that were not the case, there could be additional defense spending."
The Ford plan authorizes eventual expenditures of $35 billion for new weapons - 26 additional warships, 697 military aircraft, 3,000 tanks and other armoured vehicles and 45,000 missiles. Included is $1.7 billion for the controversial B-1 bomber, "building toward an eventual force of 244 . . . "
Space spending would climb $200 million in fiscal 1978 to $3.9 billion, which includes money for the reusable manned space shuttle, and a start on four other spacecraft. A newly planned mission will be the orbiting in 1983 of a Space Telescope. The fiscal 1978 budget cost is $470 million.
Net outlays for Ford's energy program including research and development were estimated at $9 billion, up from $6.3 billion in fiscal 1977, with much of the increase going for resources development, conservation, and storage.
This includes $42 million start on the Energy Independence Authority originally suggested by Vice President Rockefeller. But the EIA will be able to use up to an estimated $10 billion in borrowing authority in fiscal 1978 that does not show up in the regular budget.
Other budget proposals:
Spending for international affairs would rise slightly to $7.3 billion, while the military assistance package, included in the defense total, would drop marginally. The Peace Corps would continue to shrink.
Outlays for agriculture would decline from $2.9 billion in fiscal 1977 to $2.3 billion in fiscal 1978 and $1.9 billion in fiscal 1979.
Programs for commerce and transportation would rise from $16.1 billion in 1977 to $19.3 billion in 1978, then drop to $18.6 billion in 1979. Mass transit programs of $2.3 billion in 1978 are up 7 per cent over 1977 and 54 per cent over 1976. Subsidies to Amtrak are held down, while Con-Rail is scheduled for $2.1 billion in loans through 1981.
The Office of Management and Budget said that a family of four with a median income of $17,300 paid taxes of $1.977 or 11.4 per cent, to the federal government in 1976.Real income growth and inflation would put median income at $28,460 in 1982, and with no reductions in federal taxes, such a family would have to pay $4,490 in federal taxes, or 15.8 per cent of income.
Under the President's program, taxes on the same income in 1982 would be reduced to $3,614 or 12.7 per cent of income. An additional reduction, to $3,102, would be necessary in order to hold the average tax rate to 10.9 per cent, the level to which the President's tax program would reduce rates on a median-income family in 1977.
No figures were made available to show the effect of the tax-cut proposals on high- or low-income families, but officials said the result would be the same - return of tax liabilities to the 1977 percentages.
Lynn labeled as "pure hogwash" the suggestion that Ford had produced a budget with unrealistically low spending figures so as to embarrass Carter.
He conceded there is "restraint" cranked into the figures, "but that has nothing to do with politics. It's his (Ford's) expression of what's best for America."
The $47 billion deficit estimate for fiscal 1978 is also keyed to assumptions on the tax reduction side of the budget, not likely to be carried out by a Carter administration.
But about 75 per cent of the Ford budget is virtually fixed by commitments from prior years, and not too much movement is immediately possible in the rest of the budget.
In effect, Carter has little room to manipulate the hard care of the budget, the current services total that projects what spending would be if existing programs were continued unchanged.
But there is room to maneuver in the context of Ford's budget, which adds in his proposed spending cuts and tax proposals as if they were in fact to take effect. Many of them, however, are expected to be quietly buried, standing only as a reminder of the Ford philosophy, adapted in part from Ronald Reagan speeches, that the best government is the smallest government.
Career officials at the OMB estimated that the Carter deficit for fiscal 1977 could rise to $66 billion or $67 billion (instead of $57.2 billion) largely as a result of Carter's proposed tax rebate.
For fiscal 1978, the OMB officials said the Carter deficit might be about $60 billion (compared with Ford's $47 billion estimate) assuming that the Democrats would not accept Ford's proposed spending reductions and instead would be adding some public works and jobs programs.
Under the new congressional budget procedure, the Carter administration will have to submit proposed amendments to a resolution fixing limits on expenditures and revenues by Feb. 15.
The new administration, which will have little time to act, has been polishing its program in advance. Relatively few changes on the expenditure side can be made in fiscal 1977.