President Carter sent Congress yesterday an election-year budget for fiscal 1981 that would boost defense spending sharply, leave most domestic programs intact and reduce the deficit -- all by allowing taxes to rise.
The new spending plan -- bound in a green-and-white cover that matches Carter's campaign colors -- calls for outlays of $615.8 billion, with a deficit of $15.8 billion, less than half this year's figure.
Carter once again would require federal workers to settle for a smaller pay raise than their counterparts in private industry. The budget would limit government employes to a 6.2 percent raise. Military personnel would get 7.4 percent.
The spending total would be up $52.2 billion, or 9.3 percent, from the current year's outlays, now estimated at $563.6 billion. That 9.3 percent is about the same as the expected rate of inflation, so in "real" terms the overall budget would not grow.
Of the $52.2 billion spending rise, $15.3 billion would go to defense. Most of the rest would be cost-of-living increases in the major domestic entitlement programs: $19.5 billion to Social Securtiy, $5.2 billion for Medicare and Medicaid, $3.9 billion for assorted welfare payments and $3.1 billion for unemployment compensation as the expected recession takes its toll.
With an eye toward the coming presidential campaign, the budget provides for visible though relatively modest increases in some politically sensitive programs for the poor -- housing and education aid and medical care.
Carter also is proposing some small cuts in such programs as impact aid to public schools, school lunch subsidies and higher education grants.
As the president disclosed earlier, he is not proposing a tax cut, primarily for fear of worsening inflation.
Partly because of that decision, federal tax receipts would rise to 21.7 percent of the gross national product -- up from 18.5 percent in 1976 -- pushing Americans' tax burdens to their highest level since World War II.
Despite the modest increases in some popular programs, the relatively tight budget marks a conspicuous departure from traditional Democratic election-year spending plans -- particularly in the face of a recession forecast.
However, Carter made plain in his budget message that he believes Americans are more worried about inflation and the size of the deficit than they are about a possible recession.
At the same time, the president said that he will consider proposing a tax cut and temporarily increasing federal job-creation programs if the economy "begins to deteriorate significantly."
However, Charles L. Schultze, chairman of Carter's Council of Economic Advisers, said he sees no sign of any general economic decline so far, and argued that to propose a tax cut now would send the wrong "signals" to the country.
In an accompanying message to Congress, Carter called his budget "prudent and responsible." He contended the plan strikes a balance between the need for budgetary restraint and demands for increased government services.
Reaction to Carter's budget proposals was along predictable partisan lines, with Democrats generally praising the plan as workable and Republicans criticizing the White House for failing to propose a tax cut.
The major exception was Sen. Edward M. Kennedy (D-Mass.). Carter's chief rival for the Democratic presidential nomination, who criticized both the steep proposed rise in defense spending and the size of the overall deficit.
In a policy speech here, Kennedy complained that "if you take this new deficit and add it to other Carter deficits of the past three years . . . [it] will go down in the economic record-book as the largest . . . of any presidential term."
However, traditinal Democratic constituencies, while lamenting Carter's high defense budget and overall spending restraint, appeared willing to accept them as politically about all they could get.
Kenneth Young, the AFL-CIO's chief lobbyist, told a civil rights conference yesterday that "as I look at the other candidates, I don't see anyone who is going to be for a higher deficit and more spending.
"Whether we like it or not," Young said, "I think we're going to be fighting the battle to hold close to this proposal. All our fights, all our victories, are not for more -- but against cuts."
The projected deficit, though it is a diminished one, means Carter will not fulfill his 1976 campaign promise to balance the budget by fiscal 1981 -- even with the sharp rise in tax receipts resulting from inflation.
However, policymakers contended this failure stemmed almost entirely from the forecast of a recession, which requires higher spending for unemployment benefits and other programs.
Budget director James T. McIntyre told reporters that if the jobless rate were to remain at last month's 5.9 percent level, rather than rising as predicted, Carter's fiscal 1981 budget would be in surplus.
But officials also conceded the deficit could be $10.2 billion higher without Carter's proposed oil profits tax, which is now pending before a House-Senate conference committee.
Carter also has kept the deficit low by counting $5.6 billion in "savings" that will require approval by Congress. In many of these cases -- such as his proposed hospital cost-containment plan, and the proposed school lunch and impact aid reduction -- passage is far from certain.
The budget includes these highlights:
Carter mostly abandoned last year's effort to restrain outlays in big Democratic social programs such as food stamps, public jobs and Social Security. Instead, these programs would be allowed to rise in line with inflation.
The White House is proposing modest, but still highly visible increases in research and development grants and in key programs that aid the poor, particularly housing, education aid and medical care.
Defense spending would soar by $15.3 billion, primarily in response to the Middle East emergency. Pentagon outlays would climb to $142.7 billion -- 3.3 percentage points faster than inflation -- with bigger increases in future years.
Budget cuts this time would be concentrated in politically less-important domestic programs that are not backed by vocal constituent groups. Domestic spending overall would lag 1 percentage point behind inflation.
The budget contains only one new initiative -- a widely touted youth unemployment program designed to develop back-to-school plans that coordinate remedial education and afterschool job experience.
However, while the White House describes the program as a $2 billion effort, its cost would not reach that level until fiscal 1983. Actual spending in fiscal 1981 would involve only $150 million in "startup" monies.
With the help of deliberately late printing deadlines, yesterday's budget already makes provision for most of Carter's Jan. 19 responses to the Soviet invasion of Afghanistan, including $800 million to cover his partial grain embargo.
Budgetmakers also increased the budget's regular "contingencies" fund to $2 billion to finance other crisis-related moves, including aid to Pakistan and money for wheat shipments and reinstating draft registration.
For all Carter's talk about austerity, the fiscal 1981 spending plan was not expected to draw as much criticism from key Democratic constituent groups as his budget proposals did a year ago.
Although the spending increases the president proposed -- outside of defense -- are not large, Carter mollified some key groups by scrapping earlier plans for further cuts, such as in the states' part of the revenue-sharing program.
In terms of actual dollars, the cuts he is seeking in domestic programs would leave them with $6 billion less than they need to continue services at current levels, but that shortfall is 25 percent less severe than Carter proposed last year.
Moreover, the reductions appeared larger because of a technical change in the way the government calculates how much it would cost to maintain current services. Using the old computation method, there would hardly be a cutback at all.
The rise in military spending would significantly speed up the growth of defense outlays in proportion to domestic programs. Defense spending had been taking up a smaller and smaller portion, but Carter reversed that in fiscal 1977.
The spending plan includes a massive $54.2 billion for interest on government borrowing -- a result not only of the size of the deficit but also of higher interest rates brought on in part by tight money policies.
The $15.8 billion deficit, along with borrowing by independent government credit agencies, would increase the national debt to $934.2 billion, up from an estimated $887.2 billion in the current fiscal year.
In keeping with the spirit of the campaign year, Carter's budget contains a new section labeled "major accomplishments," in which the White House reviews its recent efforts in energy, government efficiency, health, defense, science and the environment.
The budget also takes a first step toward controlling the rapid growth of direct federal loans and loan guarantees by listing these individually in a "credit budget." However, no formal restraints were proposed for next year. a
As usual the bulk of the $615.8 billion in outlays was concentrated in a few basic areas -- 23.7 percent for defense, 23.4 percent for Social Security, 9 percent for interest and 15.3 percent for health, education and job-training. 9
The new Carter budget contains these elements:
DEFENSE: Outlays this year would jump by $15.3 billion, or 12 percent -- about 3.3 percentage points faster than anticipated inflation -- with most of the increase going to bolster the North Atlantic Treaty Organization and meet the perceived increased threat from the Soviet Union.
ENERGY: The budget includes $2.4 billion that Carter requested last year to help low- and middle-income families pay higher home heating bills. The president also is seeking more money for mass transit and car-pooling grants.
However, in broader terms, Carter is proposing no major new energy initiatives beyond the energy security trust fund and oil profits tax he unveiled last year. The gradual decontrol of oil prices would continue as planned.
JOBS: The proposal for a gradual step-up in youth employment programs is the only major domestic initiative. Public service jobs programs would continue intact.
VETERANS: Spending on veterans' programs would rise $965 million, largely to cover a hefty 13 percent cost-of-living increase in individuals' benefits. Carter also is proposing changes in the veterans' pension program.
RECESSION: Based on its forecast of a mild recession later this year, the administration is budgeting for a $3.1 billion rise in unemployment benefits and several hundred million dollars in added anti-recession aid to cities.
ENVIRONMENT: Spending for environmental programs would remain basically intact. Carter is proposing some increases in pollution-abatement grants, but there are no major new initiatives.
AGRIGULTURE: The agriculture budget would shrink sharply, dropping almost 40 percent, or $1.8 billion, primarily because of automatic adjustments in price support programs. Funding for most actual programs would not be cut.
TRANSPORTATION: Carter is proposing a rise of $528 million, primarily for grants to help states and localities buy new transit equipment. There also would be more money available for highway safety and research.
HEALTH: The new budget would increase spending on health by $5.9 billion, including $403 million for stepped-up Medicaid benefits for up to two million children and expectant mothers. Disability benefits also would rise.
EDUCATION: Along with his new youth unemployment program, Carter would increase spending for education of the handicapped. Grants for special education programs for the poor also would rise.
HOUSING: Carter is seeking authority for 300,000 new subsidized housing units -- a total of 42,000 new public housing units and rent subsidies for an added 258,000 families.
CITIES: The president is proposing a sharp $750 million increase in anti-recession aid to cities. He also will back renewal of the $6.9 billion federal revenue-sharing program, including the portion slated for states.
SOCIAL SECURITY: Carter has abandoned last January's efforts to push through modest cutbacks in duplicate benefits for widows and college students.He also will not seek any rollback in Social Security tax increases scheduled for 1981.
Yesterday's budget marked a decided departure from the "lean and austere" spending plan that Carter proposed last January. At that time, the president called for visible cuts in numerous domestic spending programs.
In this year's budget, however, Carter is proposing to increase those programs enough to keep pace with prices, and finance the increase with the higher revenues that will result from inflation pushing taxpayers into higher tax brackets.
The new budget document shows that in the absence of a major tax cut this year or next, inflation will push tax receipts up $76.2 billion, or 14.5 percent from the $523.8 billion expected for the current year.
Although Carter correctly claimed that the deficit is the lowest in seven years and "$50 billion less than when I first ran for the presidency" in 1976, the figure is being kept low primarily as a result of his decision not to cut taxes.
White House estimates show that if Congress does not cut taxes next year, the tax burden of the American public would rise to 22.2 percent of GNP in fiscal 1982 and 22.7 percent in fiscal 1983.
At the same time, the spending the president is proposing would amount to 22.3 percent of GNP -- significantly above the 21 percent level Carter had hoped to achieve by fiscal 1981.
The $563.6 billion spending figure Carter cited for the current fiscal year -- and the accompanying deficit of $39.8 billion -- are far larger than had been estimated previously.
The budget resolution passed by Congress last September calls for $547.6 billion in spending and a deficit of $29.8 billion. Carter had demanded in last January's budget that Congress hold the deficit below $30 billion.
However, budget director McIntyre said last weekend that both figures were bloated by the worsened economic outlook, which increases the government's estimates of jobless benefits and other payments it will have to make.