When the Cheering Died

By GEORGE J. CHURCH

The President makes his final budget proposals, and the battle begins

"I urge the members of Congress to remember that last November the American people's message was loud and clear. The mandate for change, expressed by the American people, was not my mandate; it was our mandate."

With that ten-ton hint, Ronald Reagan last week sent Congress the second and final installment of his budget-slashing proposals for the next fiscal year. The President's meaning was unmistakable: the public wants deep cuts in both spending and taxes, and any legislator who tries to keep the ax from falling risks putting his own neck under an ax at the polls. But the warning did not prevent opponents in and out of Congress, some of whom had initially seemed stunned into silence by the vigor of Reagan's budget blitz, from recovering their voices. Though Reagan still seems likely to win a great deal of what he wants, it will only be after a fight in which some of his specific proposals could be substantially reshaped.

At first, many cautious Congressmen held off pronouncing judgment on the program until they could see its full dimensions. The White House provided them last week in a 165-page blue-bound book titled simply Fiscal Year 1982 Budget Revisions. The document added $13.8 billion in proposed spending cuts to the $34.8 billion that the President identified in his televised speech to Congress on Feb. 18. It also lengthened the list of programs being trimmed from 83 to nearly 300. Moreover, Reagan proposed a cut of $21 billion, or 14%, in the authority of federal agencies to make or guarantee loans to farmers, small businessmen, consumer cooperatives and a wide variety of other borrowers; many of these loan-guarantee activities are not included in the official budget. The goal: to reduce competition between Government and private borrowers for lendable funds, a rivalry that has helped push up interest rates.

The Administration had to do some scrambling to come up with the new reductions in official spending, since Reagan had hit most of the prime targets in his February message. Some of the new cuts are quite small: for example, $2 million to be saved by closing 38 National Weather Service forecasting stations and $280,000 to be pared by shutting down the National Aquarium in Washington. The biggest saving, $4.2 billion, is a rather empty formality. It results from withdrawing recommendations by Jimmy Carter for new tax credits to states and businesses, credits that had never been enacted and that Reagan was unlikely to accept.

The rest of the proposed reductions, however, are real enough, and bear the new Administration's distinctively conservative stamp. The President deepened several of the cuts he had proposed last month. For instance, on top of the $3.6 billion saved by wiping out the program of hiring the unemployed for public service jobs under the Comprehensive Employment and Training Act, the President now recommends whacking $870 million more off CETA spending by consolidating and trimming a variety of additional youth-employment programs. Reagan had earlier recommended reducing the number of new or rehabilitated federally subsidized housing units from the 260,000 recommended for fiscal 1982 by Jimmy Carter to 225,000; last week the White House proposed a further slash, to 175,000.

In addition, budget cutters led by Office of Management and Budget Director David Stockman went after a number of departments and programs previously untouched. They proposed a $287 million decrease in an Agriculture Department feeding program for indigent pregnant or nursing women, infants and children, and a $100 million reduction in federal loans that help farmers store wheat and corn while waiting for higher prices. The White House proposed to trim $691 million from the once sacrosanct Veterans Administration budget, primarily by delaying construction of new VA hospitals; to save $230 million by reducing Army Corps of Engineers spending on a long list of dam, canal and assorted pork-barrel projects; and to reduce much criticized shipbuilding subsidies by $40 million. Said Stockman: "The thundering herd of sacred cows has now been reduced to a handful."

Altogether, the two rounds of cuts are supposed to hold federal spending during the next fiscal year within Reagan's self-imposed limit of $695.3 billion, which is $48.6 billion less than the budget proposed by Carter just before he left office. Even so, the Government, by Reagan's own figures, will run a deficit of $45 billion-and that is before the huge increases in military spending that the Administration plans, and even before the threeyear, 30% phased cut in income tax rates that it proposes, take full effect. Indeed, the White House notes that Stockman and his aides will have to cut an additional $44.2 billion out of annual nondefense spending by fiscal 1984, from sources they cannot now identify, if Reagan is to fulfill his pledge to balance the budget by that year.

But the revised presidential budget for the next fiscal year is now complete-and by sending it to Congress, Reagan gave the signal for a long-delayed storm of protest to break. On the day the President signed his budget message, 8,000 jeering coal miners marched three blocks from their union headquarters to the White House to denounce a proposed $378 million cut in federal payments for victims of black-lung disease. United Mine Workers President Sam Church Jr. asserted that 4,000 miners a year die of black lung, and cried: "That translates to eleven people a day who, after agonizing years of gasping and wheezing, finally breathe their last." The Administration says that mining companies should pay for black-lung treatment but has not yet proposed a specific way to force them to do it.

The U.S. Conference of Mayors, in a report presented by Gary, Ind., Mayor Richard Hatcher, assailed the many proposed reductions in federal grants to municipalities as "disaster for the cities." At a House Education and Labor Subcommittee hearing, angry Democrats accused the Administration of "stupid, if not criminal, activity" in proposing deep cuts in nutrition programs such as food stamps and subsidized school lunches. During a Senate Budget Committee hearing, Ohio Democrat Howard Metzenbaum, after listening to much Republican praise of Stockman, coldly told the OEM boss: "I agree you've been brilliant. I also think you have been cruel, inhumane and unfair."

Critics contend that some of the proposed budget cuts are self-defeating. New York Investment Banker Felix Rohatyn voices a widely shared fear that states and cities will raise taxes to make up for some of the proposed reductions in federal aid for education, health, transit and job-training programs. That would weaken some of the stimulus to the economy provided by cuts in federal income taxes.

The principal attack on Reagan's program focuses on three main contentions: > The cuts strike unfairly at the poor. It is impossible to put a figure on how much of the $48.6 billion in proposed budget savings affects low-income people, both because of difficulties in defining who is "poor" and because some of the programs slated for the ax--mass-transit subsidies, for example--benefit several classes. But many of the deepest reductions, such as those in food-stamp and other nutrition programs, health, welfare and job-training plans, do come at the expense of low-income groups. Liberal Democrats vehemently argue that the Reagan tax reductions will save far more money for the affluent than for the needy.

The opposite side of this issue is that Government domestic-spending programs have for decades been aimed largely at increasing the share of national wealth that goes to low-income groups. Thus any serious attempt to reduce federal spending must focus largely on programs that benefit low-income groups. However, the poor will be helped more than any other group by the lessening of inflation and the increase in economic growth that the Reagan plan is supposed to produce. Even some Republicans appear to feel that the Administration is going too far. In a meeting of the Senate Labor and Human Resources Committee last week, Republicans Lowell Weicker of Connecticut and Robert Stafford of Vermont joined six Democrats in rejecting $2 billion of proposed reductions in education programs, legal services for the poor and federal assistance to help low-income people buy fuel.

> The cuts exempt some of the programs for which spending is growing most rapidly. Here the critics--and they include a number of conservative Republicans --have a solid point. Reagan has indeed exempted many major "entitlement" programs, those to which people are automatically "entitled" if they fit certain criteria. These include Social Security pensions, numerous veterans' benefits and Medicare. Such programs are "indexed" to inflation: the faster the Consumer Price Index rises, the more benefits increase--even though the CPI is not a totally accurate measure of the cost of living. The CPI is, for instance, heavily weighted to reflect increases in housing costs, but few of the elderly living on Social Security pensions buy houses.

The Administration has never given a satisfactory explanation for exempting these programs, even though eliminating indexing could save $22 billion in 1982. It argues that Social Security pensions and veterans' benefits form part of a "social safety net" protecting the "truly needy"--though many of the beneficiaries hardly meet any reasonable definition of that term. The real reason is plainly political: to keep millions of the vociferous middle-class elderly and veterans from attacking the Reagan budget.

> The budget is based on unrealistic economic assumptions. The Administration's official prediction is that if Congress enacts Reagan's spending and tax cuts, economic growth could be stepped up from 1.4% this year to 5.2% next, the inflation rate lowered from an anticipated 10.5% to 7.2%, and unemployment reduced from an expected 7.7% in this year's fourth quarter to an even 7% a year later. These predictions are largely based on an expectation that enactment of the program will break the national inflationary psychology. Snorted House Budget Committee Chairman James Jones, an Oklahoma Democrat: "We are not going to put out a budget based on mirrors and magic."

Alice Rivlin, director of the Congressional Budget Office, warns that if the Administration forecasts prove too optimistic, "higher inflation, higher interest rates, higher unemployment would all work to produce more federal spending and larger federal deficits"; that would spur still more inflation. A way of hedging against that outcome, Rivlin suggests, would be to cut back on the big indexed programs like Social Security, so that higher-than-expected rises in the CPI would not push up federal spending quite so rapidly.

The outlines of a budget compromise are beginning to emerge in Congress: liberal Democrats would vote to keep Social Security pensions and veterans' benefits from rising quite as fast as the CPI. In return, conservative Republicans just might go along with the Democrats in reducing the cuts in health, nutrition and other programs for the poor. New Mexico Republican Pete Domenici, chairman of the Senate Budget Committee, indicates support for such a compromise and predicts that Reagan might accept it too. Indeed, some congressional cynics suggest that the President is trying to maneuver them into taking the blame for cuts in Social Security and veterans' benefits that they believe the President knows are necessary.

Both the Republican-controlled Senate and the Democrat-controlled House are pledging speedy action on the budget. House Budget Committee Chairman Jones promises to wrap all the reductions that chairmen of other committees can agree on into one big spending bill by April 15. Moreover, he predicts that it will contain $25 billion to $30 billion in spending reductions. Jones' estimate is the lowest. Senate Majority Leader Howard Baker guesses that Reagan will get 90% of the reductions he wants, and Senate Democratic Whip Alan Cranston forecasts 75%.

For all the heartfelt doubts and objections aroused by Reagan's program, the President's landslide election victory and the speed and vigor with which his aides have put together a comprehensive budget program have transformed the political climate. There will be loud and bruising fights, but they will not be about whether to cut spending, nor even primarily how deeply to cut, but simply where to cut.

By George J. Church. Reported by Gisela Bolte and Johanna McGeary/Washington

With reporting by Gisela Bolte, Johanna McGeary

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