Budget ax lay idle. Congress's '86 tax reform drive kept it from deficit-cutting duty
With public attention focused so sharply on tax reform, we would expect federal spending to continue out of control and the prospective budget deficit to rise another notch. Sadly, this is just what the record shows. Last January, the Office of Management and Budget forecast that the federal deficit would be $144 billion for fiscal year 1987. In August, OMB raised its estimate, putting the revised figure for 1987 deficit spending at $156 billion.
Later, the Congressional Budget Office and the General Accounting Office each issued new budget forecasts for fiscal 1987. GAO projected a $168 billion tide of red ink for the year and CBO's estimate tipped the scales at about $171 billion.
The GAO adds a note of caution to its estimate, explaining that a number of circumstances could cause the actual deficit to be higher than any of the projections now being made. These included ``enactment of the pending tax bill, a further slowdown in the economy, or the need to provide additional program funds....'' Those possible negatives are not merely hypothetical.
Although the General Accounting Office used the CBO's economic assumptions for making the budget calculations, it reported that its independent forecast of real economic growth for the year 1987 was 2.8 percent. This figure is below CBO's 3.2 percent and substantially less than OMB's optimistic 3.7 percent. Just using the GAO's economic projections instead of those of the CBO would raise the 1987 deficit by $3.3 billion more.
It is ironic to note that the deterioration of the budget situation has occurred while tax reform has succeeded. Enthusiasts for speedy action on the tax front assured one and all that Congress could deal with both issues - deficits and taxes - at the same time. Unfortunately, the results to date have been disappointing.
More fundamentally, there is little evidence that a new spirit of economy has pervaded government decisionmaking. Despite the widespread hand-wringing about the deficits, very little progress has been made on the key issue of controlling government spending.
Thus, the GAO warns against such expedients now being considered by the Pentagon as slowing the payment of bills owed to defense contractors or shifting military payrolls by one day so that they are moved into the next fiscal year.
But there is no need to put all of the onus for runaway spending on the executive branch of the government. Congress itself is a notorious protector of special interests. By law, the Department of Defense cannot close the most obsolete base without notifying Congress in advance and preparing costly ``impact'' statements. Congress can veto any proposal, with predictable results: Base closings are a rarity.
Members of Congress may be extremely vocal on the general subject of those ``outrageous'' budget deficits, but their specifications increase the tide of federal red ink. A recent example is the congressionally imposed requirement that military bases convert to coal and that United Sates bases in Western Europe stockpile a year's worth of coal. Those blatant subsidies to the coal industry are estimated to cost the taxpayers more than $5 billion over the next eight years.
Examples of wasteful spending in the federal budget are not limited to military activities. The price support program for honey shows how Congress favors particular interests over the general welfare. During World War II, the honey industry increased rapidly because beeswax was needed for waterproofing ammunition and equipment. After the war, demand dropped sharply. But Congress stepped in to prevent the price declines that would have encouraged a needed shakeout in the industry. The a support price is much higher than prices for either domestic or imported honey.
The inevitable has happened. Domestic producers of honey find it more profitable to sell directly to the federal government. In addition to paying above-market prices for the honey, the government must then pay storage fees on the surplus stuff. Meanwhile, American consumers buy lower-priced imported honey. The honey subsidy thus contributes to two deficits simultaneously - the budget deficit and the trade deficit.
Wasteful farm subsidies and inefficient defense spending are just two examples of the unfinished business of cutting the federal budget. Along these lines, whatever happened to the proposals of the Grace Commission? That independent body identified numerous potential budget cuts. The response to the commission's report is an example of how Congress contains the pressures for economy in government.
The debate on the commission's recommendations focused on the accuracy of its estimates of budget savings - rather than on the feasibility of its substantive proposals to slim down an overwieght government.
There is no need to be partisan in these matters. The procession of $100 billion budget deficits in recent years was sent up to Capitol Hill by the President and altered, expanded, and approved by the Congress. Likewise, the shift of public attention to the more popular subject of tax reform was endorsed by the leadership of both parties and both branches of government.
The 1986 tax reform bill is law, but the deficit problem remains unresolved. Optimists can only say, ``Wait until next year.''
Murray L. Weidenbaum is director of the Center for the Study of American Business at Washington University in St. Louis.