President Carter sent Congress a $531.6 billion anti-inflation budget for fiscal 1980 yesterday that is not as draconian as the administration had advertised, but still recommends significant cuts in some politically popular social programs.
The plan, which would hold the deficit to $29 billion as promised, calls for $6.9 billion in cuts outside the defense area -- by restraining the growth of some programs and trimming back others. Over all, nondefense spending, adjusted for inflation, is exactly the same as in fiscal 1979. Military spending, on the other hand, would rise 3 percent faster than prices.
Carter again has proposed limiting the federal pay raise scheduled for next October to 5.5 percent -- down from 10.25 percent required to keep government pay scales comparable to those in the private sector. And he wants to hold the October 1980 increase to 5.25 percent.
Total government spending would rise $38.2 billion, or 7.7 percent from this year's levels -- barely enough to keep pace with inflation. By comparison, outlays in the current fiscal year are expected to climb $42.6 billion, some 9.5 percent above those in fiscal 1978.
Some of the larger cutbacks would hit public service jobs under the Comprehensive Employment and Training Act (CETA), school lunch subsidies, minor Social Security programs, Amtrak operating funds, impact aid to education and creation of strategic petroleum reserves.
Significantly, Carter proposed virtually no major new spending programs or tax changes -- unusual for a Democratic president. The few sizable increases were in research and development, automatic cost-of-living increases for veterans' benefits, and aid for pregnant women.
Carter also again proposed a hospital cost-containment plan that he said could save $1.7 billion in Medicare and Medicaid payments. His proposed limits on federal pay increases for civilian and military workers would save an estimated $3 billion.
In his formal budget message to Congress, Carter termed his budget "lean and austere" -- an assessment most analysts agreed with, at least in political terms. The reductions are expected to touch off a bitter debate, both with special interest groups and in Congress.
In economic terms, however, the budget-cutting was not all that harsh. For all Carter's talk about belt-tightening, overall outlays would be only $4.5 billion below "current services" -- the level that spending would be if no cutbacks had been ordered.
The president's budget was hinged to White House predictions that the economy will not fall into a recession this year or next. Carter is projecting a sluggish 2.2 percent growth rate for this year -- a pace that would push the jobless rate to 6.2 percent by year-end, from 5.9 percent now.
That slow growth is exactly what Carter wants to help combat inflation. Moreover, the president indicated he intends to continue to follow policies that will keep the unemployment rate at 6.2 percent throughout 1980 as well.
Congressional leaders say the law-makers almost certainly will go along with Carter's $29 billion deficit target. But the two houses may revamp the president's priorities -- possibly reducing his proposed increases in defense spending and restoring some of the funds cut from social programs instead.
The comparatively conservative budget would fulfill a year ahead of schedule Carter's pledge to trim spending to 21 percent of the country's gross national product. In the 1976 presidential campaign, Carter had promised to achieve this by fiscal 1981.
Carter's tougher budget stance may last only one year. Estimates included this year for fiscal 1981 show that both civilian and defense spending will be growing apace. Defense spending, adjusted for inflation, would be up about 3 percent once again. But instead of staying flat, nondefense spending would rise about 2.7 percent.
Nevertheless, the fiscal 1981 budget would be almost in balance. Its scant $1 billion deficit could balloon, however, if Carter proposed a tax cut next year, as some observers expect, or if the economy falls into a recession.
The major rationale behind the new budget is to combat inflation -- mainly by trimming back the amount of stimulus the government provides to the economy. However by one widely recognized measure, that cutback would amount only to $15 billion -- a modest shift in a $2.5 trillion economy.
Carter administration officials say stimulus must be pared back because, despite the current relatively high jobless rate, the economy now is close to "full" employment. The White House says any speedup in economic activity now would only make inflation worse.
At a briefing for reporters, Treasury Secretary W. Michael Blumenthal said the budget was "part of an overall... economic policy of sustained and balanced restraint" -- a tack he said the administration would continue to take "until we succeed in bringing inflation under control."
Carter's chief economist, Charles L. Schultze, urged Congress to stay within Carter's budget limits even if the economy proves less robust than projected. "We hope the Congress will stick with it," he said, and "not move... around just because of some moderate deviations..."
Reaction to Carter's budget predictably was mixed, with liberals complaining that the spending cuts were too severe and conservatives contending that the president did not go far enough. In general, Congress appears decidedly more economy-minded this year than last.
Rep. Robert N. Giaimo (D-Conn.), chairman of the House Budget Committee, called the new budget plan a step in the right direction, and said his panel would begin work on drafting Congress' own version of the budget early in March.
The committee is scheduled to begin hearings on the budget resolution Thursday.
However, Republicans criticized the Carter spending plan as hardly making a dent in the enormous growth in government outlays. Republicans are expected to seek larger cutbacks in Democratic social programs and further tax cuts to boot.
As is usual each year, the bulk of the $531.6 billion in outlays was concentrated in a few basic spending areas: in all, some 23.6 percent was budgeted for defense, 21.7 percent for Social Security payments, 10.7 percent for interest, 10 percent for health and 5.7 percent for education.
The new Carter budget contains these elements:
DEFENSE: Outlays next year would jump by $11.3 billion, or 9.9 percent -- about 3 percent faster than inflation -- with most of the increase going to bolster U.S. ground forces. Defense spending also would rise sharply in coming years.
SOCIAL SECURITY: Carter is proposing a modest $600 million worth of cutbacks in several relatively minor programs. One would end survivors' benefits to students after they reach 18. Another would repeal the $255 burial payment for widows. Carter also is proposing to return to 72 the age at which retirees may earn as much money as they choose and still receive full Social Security benefits. The age limit had been 72 previously, but Congress reduced it to 70, beginning in 1982.
JOB PROGRAMS: The number of public service jobs financed under the CETA program would be trimmed from the present 625,000 to 467,000 by the end of fiscal 1980, for an estimated savings of $1.5 billion. Key federal youth-employment programs also would be cut.
EDUCATION: Carter wants to eliminate federal subsidies for school lunches for middle-class youngsters and also cut back part of the "impact aid" program, which provides extra money to localities with large numbers of federal workers, even if the workers pay property taxes.
ENERGY: The president would continue extra financing for research and development -- particularly involving solar energy -- but would slash funds for repetition of solar demonstration projects and for creation of more strategic petroleum reserves.
FOREIGN AID -- A modest increase in foreign economic outlays -- up $901 million to $8.2 billion -- is being requested. The major increase is a $470 million step-up for the Export-Import Bank, part of the administration's new commitment to stimulating exports and trimming the trade deficit. Most of the other programs remain stable or grow slightly.
CITIES: Carter proposed a National Development Bank to handle aid to cities, but cut back other monies. In one example, the $1.7 billion antirecession public works program for localities would be replaced by a smaller program that would benefit only distressed communities.
FEDERAL PAY: Carter has served notice he plans to limit federal pay increases to 5.5 percent again this year, and to reduce the size of the federal payroll, mainly by restricting new hiring. Only a few agencies would be allowed to expand their payrolls modestly.
Many of these cutbacks -- such as the impact aid and school lunch programs -- essentially are housekeeping measures long sought by budget reformers, but never successful in Congress. Presidents since Dwight D. Eisenhower have been trying to pare back impact aid.
In others, such as the anti-recession aid to cities, Carter simply has tried to streamline the programs by "targeting" them to groups that need the money the most. Earlier anti-recession aid programs have given funds to wealthy communities as well as hardhit ones.
Administration officials estimated $3.8 billion of the $11.6 billion in savings that Carter has proposed would depend on congressional approval while the White House will be able to put some $7.7 billion into effect on its own.
While some of these proposals will have little trouble in Congress, others are likely to draw fierce opposition. Carter's new plan to limit the rise in hospital costs is being given a better chance of passage this year than last, but the outlook still is uncertain.
The only major tax proposal the president included in the budget was his plan for a $2.5 billion "real wage insurance" tax credit to reimburse workers who agree to follow the new wage guideline if inflation exceeds 7 percent this year. Few observers believe that will pass.
Moreover, it's still far from clear that Carter can achieve his $29 billion deficit goal, even if Congress approves his proposals. If the economy falls into a recession, the government would receive less in taxes and spend more on jobless benefits. The deficit could hit $40 billion.
The budget also included what amounts to a brushoff of the demands for more job-creation measures in the new Humphrey-Hawkins "full employment" Act. Although the budget devoted several pages to the new law, Carter merely listed existing job programs as the administration's proposals.
The $29 billion deficit figure covers only the general operating and Social Security trust funds, and not the so-called "off-budget" agencies and quasi-public entities, such as the Postal Service, whose spending is not included in the regular budget.
Borrowing by off-budget agencies is estimated at $12 billion for fiscal 1980, the same as in the current fiscal year. With these agencies included, the actual borrowing by the federal government in fiscal 1980 would total $41 billion.
In one previously reported change, the administration trimmed estimated outlays another $2 billion simply by changing the way it figures interest rates for budget purposes -- to bring its procedures into line with those of Congress.
Under earlier practice, the White House used whatever interest rates were in effect just before the budget was printed. This year, however, officials have tied interest rate projections to their inflation forecast. As a result, interest payments decline later this year and in 1980.
The budget also contaned a breakdown of the cuts in government employment that Carter announced earlier. The president plans to reduce the total number of federal workers by a net 15,500 between late 1979 and 1980, ending up with a total federal work force of 1.9 million.
The major cuts include 9,300 from the Pentagon, 5,200 from the Panama Canal work force, 2,300 from the Agriculture Department, 1,000 from the Veterans Administration, 600 each from the Energy and Interior departments, and 300 or fewer from the General Services Administration and the National Aeronautics and Space Administration.
Carter's new budget would trim government spending as a percentage of the gross national product to 21.2 percent in fiscal 1980 and 21 percent in fiscal 1981, down from 22.1 percent last fiscal year and a high of 22.6 percent in fiscal 1976.
Despite all its supposed parsimony, yesterday's budget was remarkably free of the fiscal gimmicks and sleight-of-hand that characterized federal budgetmaking in previous years. Officials once routinely used bogus "receipts" from offshore oil receipts and gold sales to narrow the deficit. Carter did not.