Ford's Grand Canyon Budget

As federal budgets go, the one that President Ford will submit to Congress this week resembles its predecessors in its time-worn definition of just how big the Government must be to meet the needs of the nation. The answer seems to be: bigger. The President called for federal spending in fiscal year 1976, which begins next July, of a record $349.4 billion. That would be an increase of 11.5% over this year's level, even though Ford is proposing almost no new programs except in the energy area. To keep outlays from rising even higher, Ford also called for spending cuts of $17 billion this year and next. What emerged as the budget's main feature was the Grand Canyon-scale gap that it would accept between income and outgo. Between Ford's own $16 billion tax cut proposal and the general shrinking in revenues caused by the recession, the projected deficits come to $34.7 billion for this year and an additional $51.9 billion in fiscal 1976--the deepest peacetime flow of red ink in U.S. history.

It will be embarrassing enough for such a massive deficit to occur during the Administration of a Republican President, especially one who only a few months ago was aiming for a balanced budget in fiscal 1975. Yet Ford sees no realistic way of avoiding it as he and his policymakers seek ways to cure the nation's economic ills.

Ford's 384-page budget contains few surprises and reflects the conservative economic bent of the President and his advisers. As such, it is headed for certain trouble at the hands of a largely liberal and Democratic Congress. Many of Ford's spending-cut proposals strike heavily at the kind of social programs that no Congress would be likely to want to trim in the midst of an economic downturn. Among Ford's reductions:

P: A 5% "cap" on increases in outlays for a broad range of federal benefit programs whose payments to recipients rise with the consumer price index. Among them: Social Security, civil service and military retirement payments and food stamps. Spending for all such programs would actually go up by $11.7 billion in Ford's budget; without the cap they would probably rise to $17.8 billion. Ford's justification for the ceiling: payments in these areas have increased faster than inflation in recent years.

P: A slash of $6.2 billion in other social programs not tied to the consumer price index. For example, Ford would shave $1.4 billion from Medicare through changes in cost-sharing formulas that would require patients to pay more in certain cases.

P: A total of $4.7 billion in other savings, including deferral of $1.6 billion in spending on highway construction.

In areas of proposed spending increases, Congress is likely to grant Ford's wish for higher outlays in space, science and technology (from $4.2 billion to $4.6 billion); energy research and development ($1.1 billion to $1.6 billion); community-development programs ($3.3 billion to $4.1 billion); and general revenue sharing. Ford wants the current $6.2 billion program, due to expire next year, extended through 1982.

Congress could well ignore most of Ford's requests for cuts and go on a stimulative spending spree of its own, possibly raising the fiscal 1976 deficit to the stratospheric range of $70 billion. But if it agrees to cuts at all, which it is likely to do, Congress will slash away at areas where Ford does not want major reductions, notably national defense. His proposed Defense Department budget is $92.8 billion, up 9% from the current year and roughly equal to the entire federal budget just 15 years ago.

Actually, the Pentagon is asking for $104.7 billion in "total obligational authority" so that it can sign contracts for weapons or research and development to be delivered in four or five years. The request for TOA is $15.7 billion above this year's and is the largest ever, in peace or war.

Defense planners say that they need the money to keep pace with inflation, which has gutted military buying power, stalled delivery of new weapons, and squeezed budgets for personnel: under the Pentagon's swelling budget, 29,000 people will still be eliminated from the uniformed services, along with 10,000 civilians, in no way helping the dismal U.S. unemployment picture.

Whatever Congress does with Ford's budget, though, it is not likely to reduce substantially the exploding federal deficits for this year and next. Administration officials are using the looming deficits both as weapons against any congressionally mandated increase in Ford's $16 billion tax cut, and as arguments against more federal spending. -

Treasury Secretary William E. Simon, in appealing for a record increase to $604 billion in the national debt ceiling, told the House Ways and Means Committee two weeks ago that he felt that the proposed deficits were "horrendous." He said that they could threaten private borrowing, drive up interest rates and stall recovery in housing and in the economy generally--unless Congress goes along with Ford's proposals to cut spending. This year, he warned, the Treasury will be invading capital markets for some $70 billion, more money than was "raised by all borrowers, public and private, last year--or any other year in the past."

Others, though, do not share Simon's pessimistic view. Roy Ash, outgoing director of the Office of Management and Budget, sees the deficits as large but not excessive when measured against the downturn of the economy as a whole. The key to living with the deficits lies with the Federal Reserve Board and its chairman, Arthur Burns, who offered encouragement last week. Testifying before Ways and Means, Burns told the Congressmen: "You can expect [from the Fed] an effort to expand at a moderate rate the supply of money and bank credit." But in doing so, Burns warned, the Federal Reserve has no intention of setting off a new round of inflation.

But that, in any case, may well be less of a threat than deepening recession. The budget was based on a number of candidly gloomy projections about the shape of the economy. The most startling among them is that the nation's unemployment rate, which stood at 7.1% in December, will rise enough in the coming months to average 8.1% for all of 1975; that would mean that nearly 7.5 million Americans will be looking for jobs this year. The budget also assumes that in 1976, when the President and his party will be deep into an election campaign, the average jobless rate will still be 7.9%.

Ford took the unusual step of appearing personally at a budget preview session with reporters over the weekend, thus becoming the first President since Harry Truman to do so. Ford quoted Truman as describing the $70 billion budget for 1953, another poor year, as "the biggest headache I have ever had." The President added: "Harry, I hope you left some aspirin for me."

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