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Can budget be balanced without hurting poor?

The crux of President Carter's battle to balance the budget is to keep from hurting poor, elderly, and other vulnerable Americans in the process. That is the human dimension of Mr. Carter's demand that his Cabinet and agency chiefs trim about $20 billion from their fiscal 1981 budget requests, already stringent in many cases.

Spurring the search is the bleak prospect, an administration official said in an interview, that consumer price inflation, "worse than anyone expected," will run at a 15 percent annual rate, or even higher, during the first quarter of 1980.

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"This," the official adds, "will have a psychological effect on wage and price decisions, not only now, but after the first three months of the year."

An "acceleration in the growth of labor costs" threatens to lift the underlying rate of inflation -- after the volatiles of energy, housing, and food are stripped away -- above the current 9 percent.

To break the nation's "inflation psychology," a White House source says -- the perception among public and financial markets alike that the "government has given up in the fight against inflation" -- the President is marshaling a fresh package of measures, short of mandatory wage and price controls.

At the top of the list, a White House official says, "is a better than 50 percent chance that the President will try to balance the fiscal 1981 budget," which now projects a deficit of $15.8 billion.

In the five weeks since Mr. Carter submitted his proposed budget to Congress, agreement has grown that a more realistic deficit figure -- based on anticipated performance of the US economy -- is at least $20 billion.

But where to cut?

Defense spending, White House and congressional sources agree, is likely to keep on rising, above the more than 3 percent in real terms already contained in the Carter budget.

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"Programs to help poor people and old people," an administration official says grimly, "including federal grants to state and local government -- this is where cuts will have to come."

Much of the money that Washington sends to states and communities under general revenue sharing -- $9.6 billion targeted for fiscal 1981 -- is spent to help needy citizens in various ways.

Why, then, balance the budget at all, if Americans least able to help themselves are the chief victims of fund cutting?

Two reasons:

1. Government borrowing to finance a deficit is inflationary in itself, forcing the Federal Reserve Board either to expand the money supply or allow interest rates to rise.

2. Millions of citizens doubt the seriousness of government efforts to tame inflation, as long as White House and Congress drown their budgets in red ink.

This, in turn, impels many families to go into debt and cut into savings, to buy goods that they think will cost more next year.

To break this inflationary expectation, Carter aides insist, government should lead the way by putting its own books into balance.

Part of the search, therefore, is how to achieve the budget-balancing goal with least harm to the needy and old. The search is far from easy.

Social security payments, food stamp benefits, government pensions, and some other transfers automatically rise, under current law, as the Consumer Price Index goes up.

Billions of dollars could be saved, if the law were changed to provide for only partial indexation -- say 85 percent, for example -- instead of the current 100 percent.

Here again, however, a cutback would fall hardest on people who, generally speaking, need help the most.

Selective credit controls are another anti- inflationary weapon which President Carter might invoke to slow down borrowing by families and corporations.

Under the Credit Control Act of 1969, the President can request a range of credit controls from the Federal Reserve Board, which manages the nation's supply and flow of money.


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