Inflation keeps Reagan budget-cutters a step behind
Washington — President Reagan is learning how inflation alone, like a great wave erasing numbers in the sand, can turn his budget plans topsyturvy. No sooner do his aides get a fix on what they think government spending is going to be, than inflation washes out the figures and makes them obsolete.
This explains why the President has just had to approve about $3.5 billion in budget cuts for fiscal 1982, beyond the $41.4 billion worth of slashes he already had projected.
The latest culprit appears to be medicare, with soaring hospital costs pushing federal outlays to support this program billions of dollars higher than had been expected.
Other examples of this phenomenon in recent months:
* High interest rates shoved the cost of financing the national debt up by more than a billion dollars.
* The cost of fuel for the armed forces ballooned far beyond last summer's projections because of price hikes by the Organization of Petroleum Exporting Countries.
* Unemployment compensation, plus retraining expenses for American workers laid off due to foreign import competition, added nearly $5 billion extra to government outlays.
When inflation is accompanies by recession or stagnant growth, tax revenues fall and government spending grows.
An increase of one-tenth of 1 percent in the jobless rate, for example, adds 100,000 people to the food stamp rolls, said a US Treasury official.
When unemployment climbs by 1 percent, the official said, it costs the Treasury $25 billion to $28 billion dollars in lost tax revenues and additional outlays.
Putting all this together, estimates of the fiscal 1981 budget deficit have swollen from $30 billion last July to more than $60 billion and still are climbing.
Most of this increase in red ink came from the impact of inflation and slow growth on the economy, for Jimmy Carter sought very little new spending in his 1981 budget. Indeed, he tried to cut some existing programs.
Then Ronald Reagan took over the budget-making process. He and his top economic aides, after weeks of hard work, fastened on two critical figures for fiscal 1982.
Those figures were $695.5 billion in outlays (down from Carter's $739.3 billion) and a deficit of $45 billion (up from Carter's $27.5 billion).
The President, hanging tough on his spending and deficit goals, ordered David A. Stockman, director of the Office of Management and Budget, to sharpen his knife again.
The result was about $3.5 billion in new spending cuts, reportedly including farm price supports, veterans' benefits, job training, child nutrition programs, and others.
When Reagan earlier announced his goal of $41.4 billion in fiscal 1982 trims, his aides said that about $6.5 billion of those cuts remained to be worked out.
That $6.5 billion, plus the $3.5 billion just added, make about $10 billion in cuts to be detailed March 10, when the President sends his final 1982 budget revisions to Congress.
For Democrats in Congress, the situation presents a dilemma. Many of the proposed spending cuts would shrink programs on which low-income, minority, and other disadvantaged Americans heavily depend.
Already, coalitions of affected groups are forming to urge Congress not to let the White House knife slice through such areas.
Yet, under current law, there is no ceiling on many entitlement programs, tied as they are to inflation and, in particular, to the consumer price index.
This means, as Democrats are well aware, that the widespread public demand for less government spending cannot be fulfilled unless changes are made even in programs for the poor.