By fiscal 1984, according to the new economic plan, 1) the major entitlements programs, defined as the "social safety net" and placed off-limits, will rise to at least 41 percent of federal spending; 2) defense expenditures will rise from 24 percent to 32 percent of federal outlays, or some 6.4 percent of GNP; 3) the share of national output taken by the federal government will, in three years, be squeezed from 23 percent to 19 percent of GNP.
To accept these targets as likely outcomes requires what Alfred North Whitehead called "a temporary suspension of disbelief." It presupposes steady real economic growth of close to 5 percent annually accompanied by a decline in unemployment despite tight money. Federal interest costs are projected to decline from 10 percent to 9 percent in a shrinking budget -- reflecting Herculean assumptions of a rapid fall in the deficit (because of rapid real growth based on the supply-side effects of tax reductions) and of a fall of the interest rate to 7 percent (in the face of tight money). Expenditures for the social safety net, defense and interest payments will rise from 71 percent to a mere 82 percent of the budget -- a figure so constrained only if one accepts the assumptions regarding interest payments.
What is referred to as balance-of-government must therefore shrink from 29 percent to, at most, 18 percent of federal spending. That implies, given a budget declining in real terms, that the balance-of-government will, in relation to national output, fall by 50 percent, from 6.7 percent to 3.4 percent of GNP. With plausible economic growth rates, the programs would be cut in real terms by 40 percent or more. Achieving the Plan's goals depends critically on this massive reduction. In brief, it is not going to happen.
Balance-of-government seems a somewhat cavalier way to describe the activities of the legislature and the judiciary as well as 10 departments and all of the countless agencies, putting aside the Veterans Administration and the CIA. It includes vastly popular programs -- Smokey Bears, the national parks, the Smithsonian. It includes programs related to the national security whose aggregate cost will rise substantially -- the DOE's nuclear weapons program, the FBI, the Coast Guard, security assistance, the strategic petroleum reserve. It includes programs with powerful constituencies -- agricultural extension, maritime subsidies, aid to Israel. It includes civil service retirement ($20 billion and rising rapidly). It includes Medicaid -- capped but still growing. It includes expenditures of Congress and the judiciary, unlikely to shrink. This just begins to scratch the surface, but it should be evident that, even if Congress desires to avoid being "obsctructionist," it will find it virtually impossible to "cooperate" beyond the initial tranche in slicing the balance-of-government in half.
Not only has the safety net been "fenced" but also tobacco price supports (Sen. Helms) and the Clinch River breeder reactor (Sen. Baker); the food stamp cut has been modified (Sen. Dole). It is just conceivable that other senators may be heard from.
Nor is it only Congress. This has been described, perhaps in a spirit of fun, as Cabinet government. While Cabinet members have been extraordinary docile to date in the presence of OMB examiners, what will happen when they discover that they face unending conflict with their constituencies, their subordinates, Congress and in the courts -- that this Solomonic decision is intended actually to cut their babies in half?
The pain has not yet started. The first $34 billion in cuts were readily compiled by stapling together virtually every non-defense budget cut proposed to every budget director or president for the last 12 years. All right so far. It is comparatively easy to target CETA, Amtrak, trade adjustment assistance, the Appalachian Commission -- or to demand user fees. However, in order to reach the stated target for FY1982, an additional $10 billion to $13 billion in as-yet-unspecified cuts will be required by March 10 above the $34 billion initially specified -- perhaps more if a recession comes The going is obviously getting more difficult. Moreover, the first set of cuts must be matched by an additional $30 billion to $40 billion in cuts by FY1984, if the ultimate target is to be achieved. One may be skeptical how much beyond the first tranche of cuts we shall actually get.
It is axiomatic in budgeting that cuts are easy to identify -- so long as one merely lowers the numbers and ignores the programmatic consequences. Cutting "balance-of-government" in half -- not very likely! Protection of some areas implies that cuts everywhere will have to be correspondingly more severe -- if targets are to be attained. Other agencies will soon join the national endowments for the arts and humanities in facing reductions of 50 percent and much higher.
According to the Plan, non-defense expenditures of the federal government, now running at 17 percent of GNP, will have to be reduced to 12.5 percent of GNP to accomodate defense expenditures and reduce overall federal spending to 19 percent of GNP. Non-defense expenditures can plausibly be cut by a couple of percentage points, but hardly 4 1/2 percent of GNP -- and even the lower goal becomes difficult when the major entitlement programs are placed off-limits.
The public mood now supports major reductions in federal expenditures -- and they will come this year. But as one looks to 1984, one must be skeptical. Nonetheless, editorialists are now making sympathetic noises regarding the premises of the overall program -- inquiring who has a better alternative. How about -- facing reality. If the United States must preserve the social safety net, and if it is to strengthen its depleted defenses, as well a pay interest, some 16 percent to 17 percent of GNP will be required. It will be almost impossible to reduce total federal expenditures to the 19 percent level. Indeed, they are likley to remain in the range of 22 percent. Taxes will have to be adjusted accordingly.
Budget control is a goal fervently to be sought. But budget control will not be attained by projecting budget reductions far deeper than are realistically attainable -- and by projecting tax reduction based on the realizing of such unachieveable cuts. No matter how much one might wish it, the budget is regrettably not yet susceptible to the alchemist's art.
Perhaps most important of all, the international challenges facing this nation are serious. An endless domestic debate over unattainable objectives, distracting attention from our international difficulties, contributes little to the national interest.