Under Gramm-Rudman- Hollings, the deficit must be no greater than $144 billion for fiscal year 1987. Assuming continued growth in the gross national product of 3 to 4 percent in fiscal years 1986 and 1987, revenues, with no increase in tax rates, should grow by about $75 billion in FY 1987.
With the out-year savings achieved by the March 1 sequester order and a continuation of the three-year trend in unemployment to 6 to 7 percent, T-bill interest rates to 6 to 7 percent, and inflation of about 4 percent, only half of that $75 billion will have to be applied to reduce the deficit in order to meet the $144 billion target.
The challenge of achieving the deficit target contained in Gramm-Rudman-Hollings in FY 1987 is, therefore, the challenge of limiting the aggregate level of federal spending growth to $38 billion.
I believe we can meet this challenge. Here's how:
By holding the deficit to $144 billion, $5 billion must go to increased debt service. That leaves $33 billion in new revenues to spend. I would split that $33 billion between defense and nondefense uses.
Half the total of net new revenues, $16.5 billion, provides roughly 3 percent real growth in defense, meeting the 0-3-3 (percent) annual growth target agreed to by Congress and the president in the FY 1986 budget compromise.
What about nondefense? Social Security, with new recipients and full COLA (cost of living adjustment) payments, will absorb about $12 billion in new spending. Medicare could be limited to about $2 billion in new spending by instituting a progressive, income-based system of premium payments for part B of Medicare. That leaves $2.5 billion, which could go for COLAs in other entitlement programs.
But instead of stopping there and squeezing the federal government across the board, some programs should be eliminated, some should be reduced in scope and cost, and some high-priority programs such as drug enforcement and NASA should be expanded. In short, federal priorities need to be reordered.
I favor privatizing or terminating some 20 programs ranging from Amtrak to the SBA (Small Business Administration). It is also time for Congress to pass the modest entitlement reforms proposed by the president in the last three budget submissions.
Money saved should be invested in excellence, by fully funding the government services most important to the American taxpayers. I favor a full 4 percent increase in pay for federal workers and military personnel, because a quality uniformed and civil service is one of America's greatest assets. Costs should be controlled by reducing the size of the federal work force, not by freezing pay and losing our best people.
Those who argue for a tax increase are arguing that the deficit is the result of the working people of America not paying enough taxes. I believe the problem is that the federal government spends too much money, by undertaking activities that do not enjoy popular support and that in many cases (could) be performed better by the private sector in a growing, dynamic economy or by a level of government closer to the people.
My goal is cutting fat out of the federal budget by setting priorities, rather than cutting the heart out of the family budget by raising taxes so government can go on with business as usual.