Carter's Cutters vs. the Bulge

Largely out of sight, deep in the labyrinth of the federal bureaucracy, Jimmy Carter is preparing for what may be the biggest battle of his presidency. As a keystone of his anti-inflation campaign, he has vowed to limit the red ink in the 1980 budget, which takes effect next October, to less than $30 billion. That will mean chopping as much as $18 billion out of the normal spending for programs that many people have come to take for granted. So department by department, determined Administration budget cutters are now looking everywhere for places to slash, and they are finding the slashing hard. Says an Office of Management and Budget senior official: "This has got to be one of the toughest budgets in the past 20 years."

Carter's political future largely depends on his success in curbing federal spending and the inflation it breeds. Says Federal Reserve Board Chairman G. William Miller: "The best proof of his commitment [to trimming the budget] is that he can't get re-elected unless he deals with inflation." But if Carter cuts too sharply he will alienate many of the groups--liberals, minorities, labor--who supported him in '76. Senator Ted Kennedy, a potential Carter rival in 1980, has already threatened to fight any reductions in health appropriations. Anticipating an intraparty battle ahead, a Kennedy staffer warns: "There's going to be a lot of blood on the floor."

Domestic programs will bear almost the full brunt of the cuts. The U.S. took the lead last year in persuading NATO nations to increase defense spending by 3% a year in real terms. Carter will have a hard time going back on that pledge. To honor it, he will have to raise the Pentagon budget from $114.5 billion to about $126 billion in the 1980 budget. OMB Director James Mclntyre and other advisers are arguing for a smaller increase. But if Carter goes along with their pleadings, he will further erode the confidence of U.S. allies who are worried about American resolution. He will also make it harder to pass a SALT II treaty since members of Congress will not vote for it if they fear any weakening of U.S. defense.

Under presidential orders to cut wherever they can, federal agencies have submitted budget proposals to OMB, which is reducing them further and returning the trimmed versions this week. Then the various agencies will start making their appeals to restore funds that have been lopped off. Carter insists he will back up his budget cutters. At a mid-November meeting of subcabinet officers and other top civil servants, he emphasized that his anti-inflation campaign would require sacrifices "from everyone." Noting that all sorts of interest groups "will make their voices heard," he warned: "You will be tempted to be a spokesman for those you serve. I would like you to avoid that as much as possible and to put yourself in my position."

That is not always easy. Carter's cuts have already stirred some Cabinet-level grumbling. Labor Secretary Ray Marshall warned, though in a rather subdued fashion, that the reductions should not fall too heavily on job-creation programs. He said that the Administration will have "to prove that putting people on unemployment and welfare is less inflationary than giving them jobs." Patricia Harris, the outspoken Secretary of Housing and Urban Development, sent a sharply worded memo to OMB saying that she could not live with the proposed cuts in her department. The White House was especially irked when the memo was leaked to the press.

The White House argues that much of the trimming is not just a necessary evil but a positive good, that spending has simply got out of hand in many instances. Says a White House aide: "We just have to look at some of these things and ask ourselves: 'What are we buying? What's the real effect?' " The ax is poised over three departments in particular: Health, Education and Welfare, HUD and Labor. They will spend $214.3 billion in fiscal 1979, or about 44% of the current $491.6 billion federal budget. Their spending, moreover, has increased in the past few years. Outlays for what is defined as "education, training, employment and social services" have jumped from $21 billion in fiscal 1977 to an estimated $30.4 billion this year. Even though public school enrollment has been declining in most parts of the country, the Office of Education budget has risen from $7.7 billion in fiscal 1977 to $10.6 billion in 1979. Thus the White House is convinced that few programs will actually suffer even if substantial cuts are made.

Though no firm decisions have been taken on the precise programs to be reduced, there are some prime candidates. The Comprehensive Employment and Training Act, which places unemployed low-income people in public service jobs, will cost an estimated $11 billion in fiscal 1979. But the program is beset by inefficiency and corruption; CETA officials often hand out jobs on a patronage basis. This month Labor Secretary Marshall set up a new investigative unit to try to root out fraud in the program.

Aid to the cities is also likely to be reduced. The 95th Congress failed to renew counter cyclical assistance, which provides money for jobs when unemployment in an area reaches 4.5%. The White House will probably ask for a renewal of the program, but with the unemployment trigger pushed up higher, to 6% or 6.5%. The Administration expects to continue to support other parts of its urban program, including the proposed development bank to finance job-intensive projects in cities. But fewer funds will be provided.

Up to now about 75% of the budget has been considered practically immune to cuts because spending levels were established by Congress and can only be reduced by changing the law. Included are such huge programs as Social Security, which will cost $103 billion in fiscal 1979: Medicare, which will spend $29 billion; and Medicaid, with outlays of $12 billion. But now OMB is preparing a set of proposals for Congress that would tighten requirements for entering these programs. Such changes, OMB estimates, would save as much as $1 billion in fiscal 1980. HEW, which has learned that it must absorb one-third of the overall budget cut, cannot possibly accomplish that without changes in basic programs.

New undertakings will be shelved or scaled down. One casualty will be the national health insurance program that Carter promised during his 1976 campaign. It is too expensive to be considered now. The White House, however, can be expected to fight harder than it did before for the hospital cost-containment bill that was defeated in the last Congress.

Another casualty will be the $20 billion welfare-reform program that Carter proposed last year. Aside from costing too much, the whole rationale for "reform" was thrown into question at Senate hearings this month. A $60 million, seven-year study conducted by the Stanford Research Institute in Seattle and Denver showed that people in guaranteed annual income programs, the centerpiece of the Carter plan, worked fewer hours than before, and their marriages broke up more frequently than those of persons on the present welfare system. Carter is considering supporting a revised welfare proposal that would not be fully funded until 1982 and would cost $6 billion.

OMB officials readily concede that their budget-cutting efforts may be in vain if the economy goes into a recession next year, as many private economists (though not the Administration's) are now predicting. As a rule, a rise of one percentage point in the jobless rate adds about $15 billion to the federal deficit because of increased welfare and unemployment payments and reduced tax revenues. But many groups believe federal spending reduction represents a much more immediate financial threat than recession, and they are already beginning to register protests. A group of black leaders sent an urgent message of "concern" to the White House warning that the new budget "may deeply and disproportionately affect the poor and minorities in the most hard-pressed urban and rural areas."

Some labor officials, by contrast, regard the Administration's economy drive with resignation, especially in view of the economizing message that the voters sent to Washington in the mid-term election. Says a top labor official in Washington: "We don't like what we hear, but there's not much we can do about it. I think that the expression we will be hearing the most on the Hill will be: 'I don't dare take a chance. Look at what happened to Dick Clark.' " A liberal Senator from Iowa, Clark went down to unexpected defeat at the hands of a tax-and-spending-weary electorate. However tough the fight may he, to cut Government spending, the President appears to have the voters behind him. At least for the moment.

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