CUTTING THE FEDERAL budget requires more than an ax and the inclination to swing it. There is an indiscriminate quality to the flood of drafts and proposals now pouring out of the White House. To carry through theis process of budget control, President Reagan will have to impose a clear sense of order and priority on it. To judge the wisdom of the many kinds of cuts now being advanced by the White House staff, there are a few general rules to keep in mind.
Rule One: Benefits, and particularly pensions, need to be protected against inflation -- but not overprotected. A corollary is that all pensions ought to be protected equally, rather than some better than others. Pensions now constitute more than one-fourth of the total federal budget, and even changes that look niggling and technical can make very large differences. The current method of indexing Social Security benefits for inflation has, through a statistical defect, been overcompensating them for housing costs. Shifting to a more accurate index would save about $2 billion a year. By the same token, since Social Security is adjusted only once a year for inflation, it is clearly unfair to adjust the civil service and military pensions twice a year. Putting all the pensions on a once-a-year schedule would save another $1.7 billion a year.
Rule Two: Go after the overlaps. CETA -- the Comprehensive Employment and Training Act -- has two separate programs to provide public service jobs for people who need work experience. In practice, the two are doing much the same thing. To eliminate one would save a billion dollars a year. But to go further and wipe out all of the CETA public service jobs, as the administration evidently contemplates, would prove a much less sound economy. It would cut off a unique route to employment for, in particular, the people of the inner cities.
Rule Three: Some well-intentioned ventures simply don't work. Trade Adjustment Assistance was supposed to ease the transition of working people out of industries eroded by foreign competition. In practice, it only encourages them, with high benefits, to delay any transition. A billion dollars a year could be eliminated here.
Rule Four: Look for the obsolete subsidies. The enormous increase in oil prices has made most of the energy subsidies obsolete. With the price of oil at $3 a barrel, for example, there was a case for percentage depletion allowances for independent producers. With oil at $35 a barrel, there isn't. The depletion allowances cost the government half a billion dollars a year. Incidentally, there's a long list of large subsidies through tax breaks that has been conspicuously absent from the discussion so far.
Rule Five: Take a hard look at untaxed income. Why should unemployment benefits be tax-free? Other citizens, working to earn the same income, pay taxes on it. Taxing unemployment benefits would stop a leak of $4 billion a year.
Rule Six: But don't make cuts that will simply push a necessary burden onto someone else. The leading example here is Medicaid. The administration is evidently considering simply putting a ceiling on Medicaid considering simply putting a ceiling on Medicaid spending. What are local communities to do about people who are indigent and sick? Capping the federal outlay would only shift the load to states, cities, hospitals and private insurance plans. That's another poor economy. It wouldn't diminish the cost, but merely evade part of the federal responsibility.
Rule Seven: Don't try to save money by shaving down the benefits of helpless people. Many of them are children, and many of the adults are disabled. They weren't living well even before the election. If you're exasperated by the stories about Idaho ski instructors who collect unemployment benefits all summer, and California surfers who live on food stamps the year around, by all means go after the eligibility rules for these programs. But don't think that the allotments are too high. They aren't.
These rules, followed through the labyrinth of the federal budget, can lead to savings of the magnitude the Reagan administration seeks. It can be done without savaging the poor, terrorizing the elderly or bankrupting the cities. It can be done without debasing necessary public services, or betraying established public comitments. But it will have to be done with great care, for the federal budget now touches the daily care, for the federal budget now touches the daily lives of everyone who lives in this country.