Cooking the Books

By Evan Thomas

When David Stockman addressed the board of the New York Stock Exchange last month, he was astonishingly frank about the Government's use of subterfuge in putting together the budget. "We have increasingly resorted to squaring the circle with accounting gimmicks, evasions, half-truths and down right dishonesty in our budget numbers, debate and advocacy," said he. "Indeed, if the SEC had jurisdiction over the Executive and Legislative branches, many of us would be in jail."

If not an outright fraud, the process of drafting a federal budget has become an exercise in creative writing. The one passed by Congress last year projected a 1985 deficit of $181.1 billion and heading down. When the books close on fiscal 1985 this October, the deficit will be more than $200 billion and rising. It has become a standard, and dangerous, practice in Washington to proclaim budget reductions that in fact are the product of phony numbers that never translate into reality.

This year the charade is again under way. The White House began in February by sending Congress a $50 billion "deficit-reduction" package with full awareness that it would never pass. It sought to eliminate a dozen well-entrenched agencies. Predictably, all survived the congressional ax. In May the Senate passed a budget resolution that would cut the deficit by $56 billion in 1986 and $295 billion over three years, but only if the economy realizes some rosy assumptions: a growth rate of 4% over the next 3 1/2 years, inflation holding at 4% and a steady decline in interest rates to 5.5% from the current 9.5%. By contrast, Stockman pointed out, the consensus forecast of top private analysts is for 2.9% real growth, moderately higher inflation and significantly higher interest rates. If the "nation's 50 leading business forecasters are correct," Stockman dryly concluded in his Stock Exchange speech, the result would not be deficits declining toward $100 billion by 1988 as projected by the Senate but remaining at nearly $200 billion each year.

The House then passed an even more fanciful resolution, combining the dreamy economic assumptions of the Senate with some illusory savings of its own. For instance, more than $3 billion in deficit reduction for 1986 would supposedly come from curtailing the practice of contracting out to private industry such services as security and cleaning for federal buildings. The House, defying decades of experience, assumes that the Government could perform these functions far more cheaply itself. "Baloney," scoffs Congressman Delbert Latta, ranking Republican on the House Budget Committee. A committee staffer concedes that the figure was reached not after careful study but by "aneducated guess."

The House budget would pick up another $15.25 billion in "unspecified savings." Explains a Republican leadership aide: "That usually means there's a cold chance in hell of getting any of it enacted." For example, the House would save $3 billion over three years in reduced Medicare costs, but without cutting benefits. The House somewhat wistfully hopes that the medical profession and private health-care services will voluntarily absorb increased costs.

The budget compromise promises savings of $27.5 billion in defense alone. But that number is suspect because it assumes the Pentagon will spend less than it is entitled to. If the Pentagon does not oblige, savings could be slashed by as much as $6 billion. No major weapons system is canceled under the compromise, suggesting that military maintenance and operations would have to be sacrificed if the lower spending target were to be met.

Now that the White House and Hill leadership have apparently compromised by agreeing not to make meaningful cuts in either Social Security or defense, congressional bookkeeping will almost surely become even more imaginative. Asked if the House budget was not fashioned from "smoke and mirrors," Democrat Vic Fazio of California responded not by answering, but by gloating over the G.O.P retreat on Social Security cuts. Never mind that the deficit will go on growing; just think of the political profits. Chuckled Fazio: "They'll be sucking our smoke." --By Evan Thomas. Reported by Sam Allis and Christopher Redman/Washington

With reporting by Reported by Sam Allis, Christopher Redman/Washington