$14 billion defense cut will have limited impact, experts say
The $13.9 billion worth of defense budget trims the Reagan administration grudgingly sent to Congress last week will have only a limited impact on the economy, experts say.Skip to next paragraph
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The package is not likely to clear Congress in exactly the same form it was submitted. But spending reductions of roughly the magnitude proposed by Defense Secretary Caspar W. Weinberger - or even the larger cuts called for by defense spending critics - will not shake the economy, experts say.
''Thirteen point nine billion dollars in the context of a $3 trillion economy is still fairly insignificant,'' notes Steven Wood, senior economist at Chase Econometrics, a forecasting firm.
While the spending reductions will have little impact on economic growth or inflation at the national level, some individual defense contractors and communities where they are based may feel the changes. ''On a regional basis, this could have an impact,'' says David Berson, senior economist at Wharton Econometric Forecasting Associates.
One reason the Reagan administration plan would not have a major economic impact is that it avoids killing any major weapons systems. Instead, the bulk of the spending reductions are carried out by delaying or stretching out planned purchase of conventional weapons. Strategic nuclear weapons systems - like the MX missile and the B-1B bomber - escape unscathed.
Systems that are affected include the M1 tank and the C-5B cargo plane. The administration proposes reducing the number of M1 tanks it will purchase from the General Dyanamics Corporation to 600 from 720. And the Defense Department proposed delaying the purchase of two big C-5B cargo aircraft manufactured by Lockheed Corporation. The plan also calls for reductions in spending for operations and maintenance.
The suggested defense spending changes are part of the budget deficit reduction package Senate Republican leaders and the President agreed to March 15 .
The Republican deficit reduction plan would trim the deficit $144 billion over fiscal years 1985-87. Domestic spending would be cut $37.4 billion and taxes increased $48.3 billion. Defense spending authority would grow 7.8 percent after adjustment for inflation rather than the 13 percent increase the administration sought earlier.
According to a Senate Budget Committee staff member, the Senate should to pass the Republican leadership's deficit reduction plan this week after wading through roughly 40 amendments over a three-week period. After the deficit reduction plan is adopted, the Senate is expected to turn to passing a budget resolution covering fiscal 1985.
Among the amendments the Senate rejected last week as it worked on the deficit reduction package were bills calling for a one-year freeze on almost all military and domestic spending and a measure that would have given the President line-item veto authority for spending bills.
The freeze, proposed by Sens. Charles Grassley (R) of Iowa, Nancy Kassebaum (R) of Kansas, Joseph R. Biden Jr. (D) of Delaware, and Max Baucus (D) of Montana would have cut deficits over three years by $242 billion.
The Senate's deficit reduction and budget planning work have fallen well behind the House. Before the congressional spring recess began April 13, the House approved a plan to trim $182 billion from the deficit from 1985 to 1987. The House also has passed a budget resolution that sets spending targets for the coming fiscal year. Defense Secretary Weinberger made it clear he was not happy about making reductions in the administration's defense spending plans. ''These budgetary revisions are intended solely to help accomplish a federal fiscal policy objective,'' he said. ''They should not be interpreted as a change in the administration foreign policy or national-security objectives.''
Weinberger added that if the Congress did not come through with other major elements of the Republican deficit reduction plan - including raising additional revenue and making domestic spending cuts - ''I would tell the (Senate Armed Services) committee to forget everything I said.''
Overall, the administration plan would fix defense budget authority (permission to enter into contracts) at $291.1 billion for FY 1985, which starts Oct. 1. The administration previously had requested $305 billion in authority. Defense budget outlays - the amount that will be spent in budget year 1985 - would be reduced from the $264.4 billion originally proposed to $258.6 billion.
Congress is likely to try to make bigger cuts than Secretary Weinberger favors and to trim programs the administration left alone. For instance, the House Armed Services Committee recently approved a 6 percent inflation-adjusted increase in spending authority vs. the 7.8 percent figure the administration favors.