The Dangers of Budget Bloat

Washington's free-for-all spending just makes inflation worse

Even conservatives now accept that moderate deficit spending is often necessary to lift the economy out of a recession. Fair enough, but as the U.S. enters the fourth year of recovery, deficit spending is reaching tidal wave proportions. The deficit called for in Jimmy Carter's budget for fiscal 1979 is $60.6 billion, and it promises to keep the flood of red ink cresting at least through 1980 and probably much longer.

The dizzy growth of the deficit must be reversed because it condemns the U.S. to unending inflation, sapping not only the nation's economic vitality but even the strength of its political institutions. When the Government spends beyond its means, the Federal Reserve Board confronts a cruel choice. If it prints more money to accommodate the Government's heavy borrowing, it feeds inflation. If the board refuses to print the money, it risks creating a recession, because the Government sops up so much credit that little is left for private borrowers.

Congress is only making the deficit problem worse. As next week's deadline approaches for House approval of the so-called target budget, which will determine the basic size of fiscal 1979 spending, many of the 435 Congressmen are rushing to push various pet projects into the overloaded document. Expenditures for agriculture, education, community development and veterans' benefits all have been increased by at least $1 billion more than Carter proposed. Complains House Budget Committee Chairman Robert Giaimo of Connecticut: "We've got to stop all these bright little ideas from being passed. You add them up and multiply by 435 and you've got trouble."

In recent weeks Congress has grown uneasy about the size of the deficit, but instead of acting to limit spending, a movement is gaining ground to reduce or delay the $25 billion tax cut that Carter plans for October. Doing that might crimp the growth of the economy. It would be far better to reduce spending and use part of the savings to cut taxes.

The problem is that Congress has historically viewed the very idea of budget cutting as rather like repealing Christmas. Special-interest groups instantly howl, and Congress listens. The groups are as large as the 34 million Social Security beneficiaries and as small as the 1,700 beekeepers who this year will draw $2.9 million in federal indemnities because their bees may have been harmed by Government spraying of pesticide.

Beyond that, many of Washington's ever multiplying programs provide funding commitments that grow automatically with the population or the inflation rate.

In the past ten years, the share of the budget consumed by these programs has increased from less than 30% to nearly 45%.

Because of all these factors, perhaps as much as 90% of the entire budget is treated as politically untouchable by Congress.

All this makes a mockery of Carter's vow to discipline the budget process by requiring each department to justify every dollar in its annual spending request. That approach, known as "zero-based budgeting," is saving little or no money and is simply creating a lot more paper work.

The President has abandoned his campaign pledge to balance the budget by 1981, and the Office of Management and Budget admits that a 1981 deficit of "around $10 billion" is more likely. If present spending trends continue, the Administration will not come anywhere near the target. In fact, computer projections by Data Resources, Inc., show that if the Administration gets just a few bad breaks --a continued substantial upward thrust in food prices, sporadic big increases in the cost of imported oil--the deficit could explode to $220 billion in 1987.

The first step to prevent such a disaster is for Carter to block spending from going any higher; he can do this by adhering to his pledge to veto bills that would push the budget above his suggested $500.2 billion. In addition, although most of the 1979 budget is fixed in stone, some cuts can be made. Wisconsin's William Proxmire, chairman of the Senate Banking Committee, ambitiously calls for a total reduction of as much as 7%; Jack Carlson, chief economist of the U.S.

Chamber of Commerce, urges a 2% across-the-board reduction, amounting to $10 billion. At the least, Carter has to start pressing Congress to accept even sharper reductions in the rate of spending growth in fiscal 1980 and later years.

The only way to do that is for some "uncontrollable" spending to be controlled, some "mandated" programs to be unmandated. Among the fastest growing:

Federal Pensions. Spending for civil service and military pensions has surged from less than $3 billion in 1955 to $20 billion annually. A $15,000-a-year Government worker can retire at 55, after 30 years of service, and draw $703 a month, with cost of living increases. After 20 years, a member of the military can retire with an inflation-proofed pension equal to 50% of his salary; then, as a veteran, he gets preference for a civil service job. If he had joined the armed forces at age 17, he could leave at 37, go to work as a federal civilian employee, retire at 67 and draw Social Security, military and civil service pensions all at once.

Grants to States. Federal grants-in-aid to state and local governments have just about doubled from $43 billion in 1973 to Carter's recommended $85 billion in fiscal 1979. But 44 of the nation's states are awash in budget surpluses that total $10 billion. So why did Congress this year appropriate $250 million just to help them fill potholes in their streets? A portion of the money that Washington will give to state and local governments in 1978 is supposed to be spent for recession-fighting public works projects; the funds keep pouring in, even though the recession is over and unemployment dropped last month to a 3 1/2-year low of 6%.

Education. Since 1972, aid to education has more than tripled, to $3.2 billion. Typical of the excess is the interest-subsidized student loan program, which began in the mid-1960s to help needy children go to college. Students now qualify if their families earn up to $25,000, and defaults have soared. Next year's default write-offs and interest charges will cost the Government $670 million. Yet Congress is considering spending perhaps as much as $3 billion a year more to allow any student, no matter how wealthy, to qualify for a loan.

Additional waste is contained in the panoply of programs for elementary and secondary schools. So-called impact-aid funding, started during the Korean War to help educate children from G.I. families, has been unnecessarily broadened to cover children of all federal workers, at a cost of $712 million annually. A bill now in the House would lift this to $1.3 billion by 1980. Not many Congressmen will oppose it: 411 of them come from districts that will benefit.

Social Security. Now the largest single program in the budget, Social Security has grown from $17.5 billion in 1965 to as much as $133 billion next fiscal year. Congress saved the whole program from eventual bankruptcy only by passing a Social Security tax increase of $227 billion over the next ten years, by far the largest peacetime revenue-raising measure in the nation's history. Collapse threatened because Social Security payments have been automatically increased to offset inflation, a scheme that does more to spread the plague than cure it. Nobody wants to reduce current benefits, but their future growth can be contained. The rising cost of health care has also burdened the program. Beginning in 1966, low-cost medical care for the elderly has been provided by Social Security through the Medicare program, but without sufficient funds to do the job.

Defense. Though the nation has been at peace for the past five years, military spending has grown by 58%. Money is wasted by maintaining dozens of unnecessary defense bases, many of which were set up during World War II when 12 million men and women were in the services, v. 2 million now. Reports TIME Washington Correspondent Simmons Fentress: "There is no compelling strategic or economic reason not to shut down such large military training bases as Fort Dix, N.J., or Fort Jackson, S.C. But there are political reasons. For six years the Pentagon has been trying to close the training facilities at Fort Dix, and for six years the effort has been fought off by the New Jersey congressional delegation." Last month Defense Secretary Harold Brown joined the battle all over again, announcing a plan to phase out the Fort Dix facilities and eliminate or consolidate 84 other bases. The saving would be $337 million a year, but at a cost of 23,200 jobs, and Congressmen in the affected districts are up in arms.

Cutting the budget down to affordable size would not mean unraveling every spending program, but would require a sober reappraisal of what Government can and should accomplish. The basic question is whether even the world's wealthiest nation has the resources to heap one program on top of another with little thought to the consequences. Some of the goals are admirable, but the runaway spending is producing a stumbling nanny-state that tries to help powerful special interests but in fact hurts the whole nation by ravaging it with inflation.

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