Washington bears down on spending. Stock market turmoil around the world points up a sobering fact: The US economy is burdened by a growing mound of debt. Tough choices are ahead for Americans, especially political leaders. First of four parts on the budget deficit.
Washington — ``Well, just a minute. The President of the United States cannot spend a nickel,'' President Ronald Reagan said at a news conference last week. This past fiscal year - with the President signing the checks - Congress spent 2.9 trillion nickels more than it took in.
Yesterday, President Reagan and key congressional leaders sat down to find ways to nickel and dime the 1988 deficit down by $23 billion (``Budget summit'' begins, Page 2). Although they will look at tax increases and other ways ways to stuff more nickels into the piggy bank, a significant portion of their talks will center on cutting spending.
The total budget this past fiscal year was $1.1 trillion. As much as 78 percent of this is ``mandatory'' spending. For example, in fiscal year 1987, which ended Sept. 30, the government spent 14 percent of its money paying interest on its debt. ``This is like paying the interest on your credit card - it has to be done,'' says Stanley Collender, director of federal budget policy with the accounting firm of Touche Ross & Co.
In addition, the government has committed 19 percent of its current spending to pay for contracts signed in previous years. In some cases, it would cost more to cancel the contract than to pay it. This leaves entitlements, for which spending levels are predetermined and politically difficult to change. Entitlements constitute 46 percent of the government's spending. This includes social security (20 percent of the total budget), medicare and medicaid (11 percent), and food stamps (3 percent).
The defense budget consumes about 28 percent of government spending, while other discretionary programs (government agencies and foreign aid, for example) add up to 17.2 percent of the budget. (These figures add up to more than 100 percent because these expenses are offset by user fees which the government does not count as taxes.)
Over the years, deficit spending has accumulated to a tidy sum. According to the Office of Management and Budget, the total gross national debt is expected to reach $2.6 trillion by the end of next year.
Government spending as a percentage of gross national product - the nation's production of all manufactured goods and services - has also been rising. When Dwight Eisenhower was president, the government spent 18.3 percent. In fiscal 1987 it will spend 23 percent.
Historians frequently point to the New Deal of the 1930s as the first step toward the deficits of today. As the government took on a social insurance function formerly provided by families, its spending surged. By 1936, the budget deficit was $4.3 billion.
During World War II, government spending increased dramatically. By 1943, the government had spent $54 billion more than it received in taxes. Once the war ended, however, the deficits became surpluses lasting through most of the 1950s. The federal spending binge started again with the Great Society programs of the 1960s and the Vietnam war. ``The seeds of our current budget dilemma started then,'' says Rudolph Penner, former director of the Congressional Budget Office.
By the late 1970s, lawmakers were having difficulty paying for programs enacted a decade earlier. A major change took place when Congress indexed and broadened social security in the early 1970s, making it into a retirement program for the middle class. By 1976, the federal deficit had swollen to $74 billion. ``What we did was use a short-term financing technique to fund long-run commitments,'' Mr. Penner explains. As inflation hit double-digit levels, increases in the social security bill threatened to bankrupt the system.
By the time President Carter left the White House and President Reagan enacted his tax cuts, the red ink was out of control. Defense spending soared in the early 1980s. Revenue did not keep up with spending, resulting in a flood of red ink and a deficit in 1983 of $220 billion.
Like the seasons, reform of the budget process comes and goes regularly. In 1974, President Nixon refused to spend funds authorized by Congress. This resulted in the Congressional Budget Act of 1974, which established the Congressional Budget Office to give nonpartisan snapshots of the economy and government spending.
President Carter took an ax to the budget in 1978, hacking away at domestic programs. The rhetoric at the time concerned ``mortgaging our future.'' As Alice Rivlin, former head of the Congressional Budget Office, has noted, ``Where you stand is where you sit.''
Those sitting in the White House for the past eight years say they too have tried to pare spending. Domestic programs felt the pinch in 1981, and again in 1983. Three years ago Congress made changes in social security to try to prevent the system from becoming insolvent. And two years ago the Gramm-Rudman deficit-reduction act was passed to try to stem the spending binge.
``Budget cutting is not new,'' says Carol Cox, who ran the legal group at the Senate Budget Committee until 1981.
This week's budget summit marks the first time that President Reagan has sat down with congressional leaders to hammer out a compromise. It won't be easy.
To begin with, Mr. Reagan has taken social security off the table. In addition, there is nothing he can do about interest payments, or past contracts. As Ms. Cox notes, ``It is unlikely they will try to change the entitlements program in such a short time.''
This leaves defense spending and discretionary spending, such as foreign aid and government operations. For the past two years, defense spending has been cut in real terms. But Penner expects still more defense hits. ``I think we could see some changes in investment areas and the procurement of weapons,'' he says.
Cox hypothesizes that the current Washington summit will find a way to freeze almost every program. ``If they increase funding for air-traffic controllers,'' she says, ``they will find a way to cut programs elsewhere.''
Some segments of the government are already planning for layoffs. Congressional committees are going through the process of looking for ``cats and dogs,'' or individual programs that can be sliced without too much political fallout.
To some lawmakers, the process is frustrating. This year, Congress passed 13 appropriations bills, ornamented with pet programs for every congressional district. Congressmen were given the option of voting either yes or no for the whole appropriation.
``These bills are negotiated not legislated,'' complains Rep. John Porter (R) of Illinois. Once the budget crisis is over, he says, Congress should look at the whole system. ``We're being denied the power to vote on amendments to really whittle down spending,'' he concludes.