Nixon's Budget: Thin Slices for New Goals

TWO centuries ago, their mercantile genius and drive gave the American colonists the world's highest standard of living. The nation since then has grown complacently accustomed to being the richest on earth. Yet the U.S. has rarely been at ease with its wealth, and even now, on the brink of a trillion-dollar economy, it has not fully reconciled the desire for private affluence, the requirements of international responsibilities, and the tremendous need for social and environmental reforms.

Richard Nixon has spoken movingly of the grail of the 1970s: improving the quality of life for all Americans. But his first annual Economic Report and Budget Message are consumed by the immediate challenge of inflation. To achieve the budget surplus that he deems crucial to the fight against rising prices, Nixon has called for an austerity level of federal spending in the fiscal year that begins next July.

Parsimonious Beginning. He proposed a massive $5.7 billion cut in defense and space outlays, reductions or outright abolition for 57 "outmoded programs," and increased Social Security and transportation taxes and postal rates. For lack of money, the President suggested a parsimonious beginning on new activities that he endorses, such as those dealing with air and water pollution, welfare reform and federal revenue-sharing with states and cities. The result is a spending program of $200.8 billion, an increase of just $3 billion over projected expenditures for this year. Taking inflation into account, Nixon is really advocating a reduction in federal purchasing power. Even so, the budget projects a surplus of only $1.3 billion, a precariously fragile barrier against an inflationary deficit.

Neither an end to the Viet Nam War nor continued expansion of the economy, by Nixon's calculations, offers much prospect of yielding dividends to buttress the nation's attack on its problems. Said he: "Existing programs of government and probable demands of the private sector could use up all the output we can produce for several years to come. If we decide to do something new or something more in one direction, we will have to give up something elsewhere." As he has before, Nixon blamed "the errors of the past" for much of the present and prospective difficulty. On top of previous deficits, last year's cut in the income tax surcharge --now due to expire altogether on June 30--curtailed revenues available to the Government. The slowdown in the economy, plus falling corporate profits, will curb the normal growth of tax receipts.

No Recession? Nixon's Economic Report, supported by the findings of his Council of Economic Advisers, forecast both less inflation and less growth for the economy this year than last. Gross national product should rise about 5 1/2% to $985 billion, the CEA predicted, compared with the too swift 7.7% expansion during 1969. The trick, of course, is to keep the anti-inflationary slowdown from growing into a grave economic slump. Last week, stock prices, often an advance indicator of broader economic trends, fell to their lowest level since November 1963 (see BUSINESS). Still, Nixon told his news conference at week's end: "I do not expect a recession to occur." Thanks to his "real" budget surplus, he added, "the time is coming" when the Federal Reserve Board can relax its monetary restraints. "I'm not saying what the Federal Reserve ought to do," said the President, but if money remains too tight for too long, "we will have a recession."

Nixon has good reason to be hopeful that the Federal Reserve may soon begin to loosen its rein on the nation's money supply and credit. Presidential Counselor Arthur Burns, who was sworn in last week as Reserve Board chairman to succeed William McChesney Martin, has been the chief Administration advocate of stringent federal economies. Reason: he feels that monetary policy has been bearing too much of the burden in combatting inflation.

For the longer run, Nixon enunciated a strategy that seems to juggle the economic variables in favor of price stability rather than growth or low unemployment. "Personal freedom," he said, "will be increased when there is more economy in government and less government in the economy." Over the next five years, federal revenues are scheduled to shrink from 20.8% to 19.6% of the gross national product. Thus the Nixon Administration will have little to spend for new social programs in the '70s unless it makes massive cuts in defense costs or decides to reverse the trend in federal taxation.

Even by 1975, the "national nest egg," as the Administration dubs the prospective leeway for increasing federal outlays, will amount to a mere $22 billion, or 1 1/2% of the nation's total output of goods and services. That is based on the CEA's optimistic prediction that inflation will be brought under control by the end of 1971, with price increases cut to the rate of 1 1/2% a year. After that, the council foresees a resurgence of real economic growth (4.3% a year) and unemployment declining to a moderate 3.8% of the labor force.

For the present, Nixon is relying on a combination of innovation and financial surgery to balance his budget. Items: DEFENSE. Despite the high cost of the Viet Nam War, the Pentagon took by far the largest cutback. For fiscal 1971, proposed military expenditures were cut to $71.8 billion, 12% below the current level. In his biggest saving, Defense Secretary Melvin Laird is dropping 299,000 military personnel during the current fiscal year and another 252,000 next year. Many weapons systems will also get less funds. Outlays for the Air Force's giant C-5A cargo plane were trimmed $285 million, for example, by slicing the order from 115 planes to 81. President Nixon's decision to expand the Safeguard missile-defense system, however, will lift anti-ballistic missile outlays from $892 million this year to $1.5 billion in 1971. This provides for expansion beyond the two ABM sites previously authorized.

SOCIAL WELFARE. Reform of the old and research on new methods dominate Nixon's approach. The cost of social-insurance funds will jump $6 billion, mainly because of the 15% Social Security increase voted by Congress last year over Nixon's original objections. The President's initiatives have more modest price tags--$500 million for a start on the family-assistance plan that would reform welfare standards nationally, $30 million more for cancer studies, $4,000,000 for a new family-planning program. Subsidized housing for low-income families is expected to soar from 377,000 units this year to 435,000 in 1971 (cost: $805 million).

THE ENVIRONMENT. In a surprise overhaul of federal aid, the President proposed the creation of an environmental financing authority to subsidize interest payments on municipal bonds floated to build local sewage-treatment plants. Details are still to be worked out, but the Nixon plan contemplates Washington's putting up $4 billion and localities $6 billion for construction over five years. The authority's main role would be to help localities that are unable to raise capital because of tight money.

OUTMODED PROGRAMS. A year-long effort by Budget Director Robert Mayo shows in Nixon's proposal to save $2.1 billion by killing or curbing a number of bureaucratic enterprises. Among them are hospital construction grants, the school milk program and veterans' burial benefits. Nixon is anxious to liquidate $750 million worth of surplus stockpiled commodities. Provided that Congress approves--a big if--most of the sale would involve aluminum and zinc, but the list also includes 1,850 Ibs. of opium, 555,729 Ibs. of excess feathers and 48 million Ibs. of castor oil.

In election year 1970, it seems dubious whether a Republican President will be able to persuade a disputatious Democratic Congress to adopt his finely tuned fiscal package. Much of the surplus, for instance, is predicated on deferring a cost-of-living pay raise now scheduled for federal employees. Though economic conservatives will cheer what Nixon calls "prudent policy," critics can be expected to fault his attack on social and environmental problems as timid. Nixon cites "economic credibility" as a goal of his Administration, but the tiny size of his estimated budget surplus is likely to raise skeptical eyebrows both in and out of Congress. Some economists contend that the U.S. needs a budget surplus four times that large in order to check inflation and simultaneously provide enough monetary relaxation to revive the stricken housing industry.

The Administration's rationale is that a midget surplus gives congressional spenders less room to operate. Had the Administration clung to its original aim of a $3 billion surplus for fiscal 1971, explains a top Budget Bureau official, the effect would have been to encourage Congress to raise its spending sights. More important, Nixon's successful veto of the Labor-HEW bill last week (see following story) and his threat to impound other funds that he considers excess will probably inhibit congressional spenders.

As it went to Congress, Nixon's budget already reflected one remarkable shift in the pattern of Government spending. For the first time in 20 years, national defense will account for a smaller proportion of total federal outlays (37%) than will such civilian programs as education, health, manpower training and social benefits (41%). On that score, Nixon's hold-the-line budget does indeed mirror the mood of a nation outraged at inflation, taxes and high interest rates, and weary of overseas burdens.

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