President Ford held down the projected federal deficit for the fiscal year ahead by recommending a series of domestic spending cuts that Congress rejected in 1976 and is almost sure to reject again.
In a sense, incoming President Jimmy Carter will thus start out with a higher deficit than the $47 billion Ford nominally bequeathed him in the fiscal 1978 budget yesterday.
Ford estimated that, if all spending programs were carried forward into fiscal 1978 unchanged, federal outlays would total $445.4 billion.
With that as his start, he proposed $12.4 billion in spending reductions, mostly in social programs. These proposed cuts are partially offset by $7 billion in recommended spending increases, a substantial part of them for defense.
The largest cut the President proposed was in Medicare aid for the elderly, where he renewed his suggestion of a year ago - which Congress ignored - that beneficiaries be required to pay a larger share of the cost of normal hospital stays. In return, there would be a limit on the total a beneficiary would have to pay for particularly long on expensive stays - a kind of catastrophic health insurance.
The government would have emerged a net winner in this tradeoff. In addition, as one way of perhaps checking soaring medical costs, Ford would limit to 7 per cent the level by which hospitals and doctors could raise their fees in each of the next two fiscal years and still have them covered by Medicare.
The Medicare shifts would save the government $1.8 billion in fiscal 1978. Even with these unlikely savings, Medicare outlays are projected to increase more than 10 per cent in fiscal 1978, to $24.3 billion. Without the savings, the increase will be closer to 20 per cent and the total cost $26.1 billion.
Ford also proposed saving about $1.2 billion by consolidating and re-ordering school lunch and various other child-feeding programs, and a $900 million reduction in food stamp outlays, mainly by tightening eligibility standards. He proposed a similar tightening in 1976 and was rebuffed by Congress.
The President also recommended phasing out a program - over which he battled continually with Congress last year - providing federal funds for an estimated 260,000 public-sector jobs in state and local governments across the country.
The phasing-out would save $1.1 billion - but President-elect Carter, far from wanting to reduce these jobs, has proposed increasing them as one answer to the unemployment rate, which stood at 7.9 per cent last month.
The public-sector jobs money is carried in the budget as grants to state and local governments. In the current fiscal year it is estimated that these grants will total $70.4 billion and account for 26.7 per cent of state and local government spending.
For fiscal 1978 Ford proposed state and local grants totaling $71.6 billion. The increase of $1.2 billion, or 1.7 per cent, is less than the projected rate of inflation, so in real terms the aid would fall. It would also fall fractionally as a share of expected state and local expenditures, to 25 per cent.
One proposed Ford shift in the present form of federal aid to states and cities involves the tax laws as well as the spending side of the budget. Presently, income from interest on bonds issued by state and local governments is exempt from federal income taxes. This enables them to borrow at lower interest rates; lenders do not demand as much interest because they do not have to pay federal tax on the interest they get.
The problem with this is that state and local governments do not gain in lowered interest all that the federal government loses in reduced taxes; some of the federal tax benefit sticks to the lenders instead of being passed along.
Ford's proposal is that state and along, local governments be allowed an alternative to issue tax-free bonds. They could issue taxable bonds on which their interest costs would be higher, and the federal government would give them direct grants to offset those costs. The lenders' share would be cut out of the equation.
Some key congressional Democrats also like this idea, and it could well be enacted into law sometime in the next several years.
The budget provides for a substantial increase in energy spending, from an estimated $4.1 billion this fiscal year to $6.1 billion in the year ahead. A large part of this increase would go for nuclear energy - the development of the so-called breeder reactor and the production of the increased amounts of enriched reactor fuel.
Carter has said nuclear power should be developed only as a last resort and is thought likely to propose changes in this part of the budget.
One education, Ford proposed that spending be held essentially level from this fiscal year to next, when outlays would be $9.6 billion. In real terms, education outlays thus would fall.
He also proposed two shifts in the makeup of federal funding - lumping most aid to elementary and secondary education into block grants to states and local school districts, and putting more higher education aid into scholarships for poor students and less into other forms of assistance.
Finally, the President proposed a reduction of $35 million, or more than 25 per cent, in funds for the new Legal Services Corp., which provides legal aid to the poor. He also would phase out VISTA - Volunteers in Service to America - a remnant of Lyndon Johnson's Great Society.