Whatever's on the hit list, a budget flight is brewing

The scene is the Oval Room in the White House. The shades are drawn. An armed guard stands at the door. President Reagan stands behind his desk in shirt sleeves. Hard-looking men are huddled about.

"Enough's enough," said the President. "Government has got too big for its own boots. It is moving more and more into private enterprise and state government territory. It's got to stop. Sharpen your knives. Get out the artillery. I want blood."

"OK, boss," said one of the gang, a young tough named David A. Stockman, the enforcer in the budget area. "I already got a 'hit list.' But we got to get 'em up on Capitol Hill. It ain't goin' to be easy."

Well, that is not really how President Reagan is likely to decide on what to cut in the Carter budgets -- $662.7 billion on spending this fiscal year of 1981 and $739 billion in fiscal 1982. But the budget hit lists are multiplying. "We've got to get control of the federal budget," President Reagan actually told top White House aides Wednesday. "It's out of control."

Mr. Reagan hopes to cut $13 billion from the current budget. Budget Director Stockman hinted at a hit list in a speech to the National Press Club the same day -- social security benefits for college students, extended unemployment benefits, guaranteed student loans, public-sector jobs, synthetic-fuels development, agriculturl subsidies, and federal "investment" in such areas as highways and irrigation projects. "Marginal functions of government will have to be cut back," he said.

Seeing the winds of conservatism blowing, others have been drawing up their own hit lists. Arthur F. Burns, former chairman of the Federal Reserve Board, had some strategy proposals for the Senate Budget Committee Wednesday (see story below).

The Congressional Budget Office has its own list, prepared last year, at the request of eight congressmen who wanted to find ways to stem the acceleration in federal spending.

That list includes 56 specific areas for spending cutbacks, some 16 possible changes in "tax expenditures" (tax loopholes), and three administrative improvements that would result in savings, the CBO calculates, of close to $400 billion over five years.

The Heritage Foundation, a conservative Washington think tank regarded as influential among some Reaganites, earlier this month published a 378-page "Agenda for Progress: Examining Federal Spending," listing dozens of programs that it says could be eliminated or curtailed. The potential saving: $58.6 billion in fiscal 1982 alone.

The philosophical goal of such a hit list basically coincides with that of the new Republican administration: reduce federal spending by giving individuals , charitable organizations, farmers, environmental groups, business and industry , and other private-sector institutions more of a role in forming and carrying out public policy wherever possible.

Morgan Guaranty Trust Company in its January Survey has also drawn up something like a hit list in the area of so-called "transfer payments," that is, government payments to individuals of such benefits as social security pensions and so on.

Mr. Reagan told his White House ideas that he expects judgments to be made "on the basis that no one is going to be seeking office ever again . . . on what is good for the people . . . and with no political considerations entering in or even being discussed."

It may take that attitude to tackel some of the items on the hit lists.For instance, Mr. Stockman mentioned agricultural subsidies.The farm bloc has one of the most effective lobbying groups in Washington. Morgan Guaranty talks about trimming increases in social security payments. There's probably no bigger interest group than pensioners.

Yet, as Morgan Guaranty notes, if the government had used a more sensible basis for adjusting social security payments and federal employee pensions to inflation, total benefit payments for individuals this year would be lower by roughly $10 billion.

The problem is that social security payments are indexed to the consumer price index. This index, says the New York bank, "has tended to overstate inflation in recent years by virtue of the heavy weight it give to mortgage interest rates and home prices." Since most older people live in rented quarters or in their own paid-up homes, the index exaggerates the rise in their living costs. Morgan Guaranty and other suggest that a more appropriate index of social security payments would be the personal consumption deflator (PCD) of the national income and product accounts. It measures housing costs by an index of rents. Over the past five years, the PCD has increased some 10 percentage points fewer than the consumer index.

A number of other federal programs, such as health care and foods stamps, are linked to the consumer index.

The trouble with this linkage is that those paying for social security and other federal benefits have seen their incomes rise on average benefits of social security retirees increased at an annual rate of 9.3 percent in the past five years. That is 1 percent more per yer than taxable average wages and salaries. The spread becomes about 2 percent annually in after-tax terms, reflecting the upcreep in the tax rates as inflation pushes people into higher brackets.

This is the type of equity question that President Reagan and Congress will have to wrestle with as they consider budget cuts. The term "hit list," with its grim connotations, may well be descriptive of the impending political battles among powerful inter est groups.

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