In the wake of the first round of Gramm-Rudman cutbacks, Washington politicians face a stark choice: They must either make their own deficit reductions or have their most valued programs destroyed.
Two out of every three non-defense dollars are exempt from the automatic reductions. This means that defense and the unprotected domestic programs have to bear the full brunt of the mandated reductions.
Although the first cuts were relatively modest, they are a harbinger of the much bigger ones in store later this year. So while politicians can hope that the courts will rule the automatic cutbacks to be unconstitutional, they no longer have any basis for expecting their programs to be spared if a second round of reductions is activated.
The arithmetic of the first reductions is sufficiently clear to indicate how truly draconian the next round of cutbacks will have to be. The informed estimate in Washington is that the reductions for fiscal 1987 will be about $50 billion, equally divided between defense and other programs. In view of what is currently known about the amount of spending that is subject to automatic reductions, it can be projected that the Pentagon will lose 15% to 20% of its new money for fiscal 1987. To make matters worse, Gramm-Rudman so hogties the President that he is forced to make virtually equal cutbacks in each of the thousands of line items in the defense budget. He would not be able to exercise much discretion to protect programs judged to be most essential to national security.
Domestic cutbacks are likely to be upwards of 20%, forcing massive layoffs and service reductions. No one who cares about the quality of American life can be indifferent to the harmful effects of these cuts on the morale and capability of federal agencies to perform their public responsibilities.
Fortunately, Gramm-Rudman is automatic only if Congress and the White House fail to adopt their own deficit reductions. All sides now have a strong incentive to negotiate a package deal that will protect national defense and social programs while making real inroads in the $200-billion annual deficit. The means of negotiation are unimportant. What counts is that all parties endorse the results and share both credit and blame.
The shape of a package is readily within reach. It must cover the four main components of the budget: defense, domestic programs, Social Security and taxes. Policy changes in these areas can prune more than $50 billion from the annual deficit and avert Gramm-Rudman cutbacks:
Defense . The President's 1987 budget will call for a 3% increase in real defense spending. It won't happen. He received a zero increase before the Gramm-Rudman legislation, and he won't get any more now that the automatic cutbacks are in place. A package deal should aim to maintain our current defense forces through necessary adjustments for inflation. A stable budget would enable the Pentagon to plan ahead without having to risk the zigzags of recent years, but it would save close to $10 billion a year.
Non-defense programs. The President will again trot out the wholesale elimination of many programs, and once again Congress will block him. This time, however, Congress cannot triumph with a do-nothing posture, because Gramm-Rudman would force big reductions in programs dear to its heart. Congress should offer to make selective cutbacks, with savings equal to or exceeding those made in defense.
Social Security. More than $200 billion in annual Social Security spending is exempt from Gramm-Rudman. It belongs on the negotiating table. Social Security now has a surplus because of a huge transfer of income from workers, the ones hardest hit by Gramm-Rudman, to those who are retired. Older persons are getting much more from Social Security than they paid into it; young workers have no prospect of a similar return. Cutting Social Security increases would save billions of dollars a year without reducing the amount paid to any retired person.
Taxes . There can be no package deal without some tax increases. Recent statements by the President seem to recognize this reality, but thus far he has not taken any steps to break the political logjam. Upwards of $10 billion, and potentially much more, could be raised by taxing imported oil. An import tax imposed during a period of declining oil prices would have favorable side benefits in addition to deficit reduction. It would encourage energy conservation and ease U.S. dependence on foreign oil sources. An oil-import tax is only one of a number of means of producing needed revenues; any increase negotiated in a package deal would be better than the current impasse.
For sane, responsible political leaders, such choices will be the only way to avoid the blind, uncaring hand of Gramm-Rudman.