The MacNeil/Lehrer Report; The Carter Budget

ROBERT MacNEIL: Good evening. President Carter today unveiled and sent to Congress his budget proposals for the fiscal year beginning next October, a budget he called lean and austere. And the actual document contained few surprises. Most of the controversial decisions had been leaked and had drawn predictable political fire in advance: defense spending up to meet the commitment to NATO; a determined effort to slow the growth of federal spending programs at home. A budget, in short, designed to fight inflation by reducing the federal deficit to a six year low. But, surprises or not, the actual budget details gave fresh ammunition today to liberal critics, who see the President retreating into fiscal conservatism, and to conservatives, who do not see him retreating far enough. Months of economic variables and political battle lie ahead before Mr. Carter`s proposals become budget reality. Tonight, the opening of the battle over the budget. Jim?

JIM LEHRER: Robin, the tried and true journalistic way to show the federal budget is to draw a big pie and then have it sliced up by major category of spending. Using that method, today`s Carter budget looks like this: $532 billion, the total, divides into $126 billion for national defense; $299 billion for a big category known as social services -- health, jobs, housing, pensions and so on; the rest into debt service, agriculture, foreign aid and other federal operations. The defense slice is the only major increase, three percent above the inflation rate, as promised by President Carter at the NATO summit last summer. The President says there is also an overall increase in services aimed directly at the poor: Medicaid, food stamps, subsidized housing included. But other than that, most of the federal programs get cuts, either directly, or indirectly through inflation. One of the direct cuts, for instance, is in the federal jobs area, an elimination of 150,000 adult jobs, 250,000 summer jobs for young people. An indirect one: aid to local and state governments got a small increase on paper, but inflation makes it a cut in real terms. The big figure to the President right now is the one at the bottom -- the deficit this budget will generate. It`s $29 billion, the lowest in six years. Robin?

MacNEIL: In projecting those figures the administration is making a prediction about how the economy will be behaving a year or more from now. The budget drafters assume, for example, that inflation, which ran at 9.2 percent in 1978, will be reduced to 7.4 percent in 1979; and that unemployment, now at 5.9 percent, will rise to 6.2 percent. Does this jibe with the opinions of private economists? Hobart Rowen is financial columnist with The Washington Post. Bart, could you describe a little more fully than I have the economic assumptions the administration is using as a base for this budget?

HOBART ROWEN: Well, Robin, first of all, the basic underlying strategic assumption is that inflation is the main economic problem facing the country. Inflation must be licked and the dollar must be protected.

Then they go from there and assume that the nation is in the throes of or beginning to face an economic slowdown; the economy will be sluggish, it will get almost to the point of a recession but not actually stumble into one. And furthermore, that nothing should be done to prevent that from happening; we won`t go into a growth cycle now. The assumption also is that the very high interest rates, which may or may not be helping to slow down the economy now, will begin to turn down some time about mid-year. Then there is the assumption that along with the decline in interest rates the inflation rate itself will come down, rather sharply. And with all of this, underlying it all, is the assumption that the unemployment rate won`t be pushed up too severely, it will grow a little bit, but not enough to cause too much worry.

MacNEIL: So how does that jibe with what the private economists, or the spectrum of private economic opinion is?

ROWEN: Well, most private economists -- although there is some disagreement -- most private economists believe that the nation is going to enter the kind of economic slowdown that the President suggests, but there is a strong feeling among many that we will actually have a recession at the end of 1979 or perhaps in the beginning of 1980. The forecasts have tended to be pushed forward by the fairly substantial fourth quarter that we had at the end of last year. But there is a general agreement that the economy is entering a slowdown phase, and the concern that many people have is that this budget, which is restrictive in many ways, will exacerbate that situation and make the downturn worse.

MacNEIL: So they`re a little more pessimistic than the government

ROWEN: On the whole, most people, with some exceptions, are more pessimistic than the government is.

MacNEIL: Now, what happens if they`re right and it does actually turn into a recession? What happens to these budget figures?

ROWEN: Well, take the budget deficit first. If there is a recession, then the government`s revenues from corporate and personal income will be lower and the government will have to spend money on programs to assuage the unemployment situation, to pay more unemployment insurance and that kind of thing, and that will tend to increase the budget deficit. And many people think that the budget deficit, if there were a true recession, might be as much as $40 billion or more. On the other hand, a recession wouldn`t necessarily affect the President`s resolve to hold the expenditure line, and that is the most important part of the budget rather than the budget deficit itself.

MacNEIL: Now, will American industry and financial bankers and manipulators abroad, who control the fate of the dollar to some extent -- will they get the message the administration wants from this budget? About inflation, that is.

ROWEN: Well, I think they will, because I think the message in this budget is directed more to the fears of business and the worries of central bankers than the concerns of the mayors and the governors in the country. They will welcome the fact that spending has been reduced and the budget deficit has been cut. They will consider this a conservative budget; it may not go as far as many in the Congress want it to go, but on the whole it will be welcomed by the financial community, I`m quite sure.

MacNEIL: Well, thank you, Bart. We`ll come back. Jim?

LEHRER: Congress has its own budget-making and -enacting process, and the question is what it may end up doing to the President`s budget. One key Senator who believes Congress will trim it back even further is Senator William Proxmire, Democrat of Wisconsin. He`s chairman of the Senate Banking Committee and is a member of the Senate Appropriations Committee and the joint House-Senate Economic Committee. On the whole, Senator, what do you think of the President`s budget?

Sen. WILLIAM PROXMIRE`: Well, I think it`s not an austere budget. It`s a bud et which expands spending by 8.4 percent, that is, $42 billion on a Mo billion base, that`s 8.4. And I`m convinced that that`s too much, in spite of the fact that inflation will be around seven percent; the real increase, of course, is largely in the defense sector. But when you consider that inflation is our number one problem, when you consider the fact that members of Congress campaigned overwhelmingly, Democratic and Republican, on "Yes, I can cut the budget and will," that federal spending is too great; when you consider that the governors are telling us that we have to cut our budget, it`s a engine of inflation -- when you consider all that, I think it`s not an austere budget. We should cut it more, and I think we will.

LEHRER: Cut it in what way? Where will the cuts come?

PROXMIRE: I think the cuts will come in a number of areas. The Corporation for Public Broadcasting, for instance, enjoys in this budget an increase -- an increase, mind you -- from $120 million to $152 million.

LEHRER: Richly deserved, Senator.

PROXMIRE: Well, maybe. I think you do a great job here, and I love the station, but you might have to fight for that. I think that the Senate is likely to cut its own staff; I think we should, and I think we can. I think...

LEHRER: You really think that will help?

PROXMIRE: Oh, yeah. Cut the staff of the Congressional the staff of the Judiciary Committee, cut Budget Office, which is much too big...

LEHRER: What about the Banking Committee?

PROXMIRE: No.

LEHRER: (Laughing.)

PROXMIRE: No, that`s survive. But I think that and should make cuts.The ten percent increase can`t modest and small, and I think that that should seriously, there are many areas where we can defense budget should be cut; it can be. That be justified. I can tell you right now...

LEHRER: Ten percent...

PROXMIRE: Five million dollars of cuts in the defense budget that we could make and should make immediately. That would make a stronger defense force, because it`d be leaner and tougher and you wouldn`t have as much fat in it.

LEHRER: But that isn`t going to happen, is it, Senator?

PROXMIRE: Well, that`s going to be tough to get. That`s going to be much tougher to get than the other areas, unfortunately. It shouldn`t be, but many members of Congress campaigned "Cut everything but defense." And I think...

LEHRER: The President`s commitment would affect that, too, would it not?

PROXMIRE: Well, some, but I think it`s mainly because with SALT coming up and so forth we`re in a psychological situation in which it`s going to be very hard to cut that. Now, we can cut and should cut in the areas of economic development -- in fact, that`s a new initiative that the President has proposed; I think we can cut that, that`s a three and a half billion dollar proposal he`s made; he`s not going to get it, in all likelihood. I think that education increases have been great; we haven`t gotten results from them. We have to find a better way of doing that. The increases have been fourfold in the last fifteen years, and the Scholastic Aptitude Test scores are negative. We can cut and should cut in some of the health research programs that have been extravagant; Manpower training. All these things sound good; it`s very, very hard to rally support behind it. But the a ministration`s right in one area, and that is targeting; that is, they`re putting the money more where it belongs, with the poor, and I think we can improve that targeting and send it even more in that direction.

LEHRER: What about the liberal Democrats, symbolized by Senator Kennedy, who have already criticized this budget very severely? How serious a fight do you think they`re going to put up on these social programs, and are they going to be successful?

PROXMIRE: Senator Kennedy`s an outstanding Senator, he`s a brilliant Senator; he has the best staff on the Hill next to the Proxmire staff. But I`m convinced that he`s not going to have the kind of followership, either in the Democratic Party, and certainly he won`t have the Republicans following him on this. I think that the majority is clearly a conservative majority in the area of spending, and Senator. Kennedy will not succeed; President Carter is going to have to fight to hold on to some of the requests that he`s made. That`s going to be, I think, a surprising twist in this Congress.

LEHRER: You mean you think the Congress is going to come up with a budget even lower than the President...

PROXMIRE: I think the Congress is going to cut the President in number of areas and he`s going to have to fight to hold it up; and it going to be much harder to do that, because it`s hard to veto it when they cut below his requests. He can`t very well send it back and say restore it, particularly when the feeling in the country is that we should cut more and when the number one issue is inflation.

LEHRER: The President has suggested a $29 billion deficit; what do you think Congress might end up with?

PROXMIRE: I`d like to see Congress end up with a much lower deficit. I think we could balance the budget; I think we really could, in 1980. Wouldn`t be easy, but it would have a marvelous psychological effect, it would stimulate the private sector. But nothing would do more to put us on the road of achieving price stability.

LEHRER: Do you really think that`s a likely thing?

PROXMIRE: Well, it`s not likely, no, but I think we should aim in that direction. Maybe end up cutting ten or fifteen billion dollars out of the President`s budget.

LEHRER: All right. You`re shaking your head, Bart. (Laughs.)

(Laughter.)

LEHRER: Thank you, Senator. Robin?

MacNEIL: The budget drew bitter fire today from politicians representing the largest American cities-- Senator Daniel Patrick Moynihan, the New York Democrat, for example, charging that it proposes to reverse the direction of the last twenty years of the nation`s social policies. We hear now from the mayor of a city with a full complement of urban problems, Richard Hatcher of Gary, Indiana. Mayor Hatcher is also president of the National Conference of Black Mayors, and he`s with us tonight in Chicago. Mayor Hatcher, what`s your reaction to the budget? Do you agree with the Senator that it`s not an austere budget?

Mayor RICHARD HATCHER: I think about the only thing, Robin, that I can agree with Senator Proxmire on is a real effort ought to be made to effect cuts in the defense budget. The President has said that we would not -- that is, mayors and minorities -- would not like this budget, and he has not disappointed us, I think. I think the cities particularly find themselves caught between a pair of scissors made up of the White House and the Congress, and unfortunately, we are not really in a position to defend ourselves against the kinds of cuts that we`re talking about. This is not a budget that will make cities happy.

MacNEIL: What specifically really hurts you?

HATCHER: I think we get hurt particularly by the reductions in the jobs programs. The administration itself suggests that we can anticipate some rise in unemployment over the next year and a half to two years; and to reduce the number of jobs produced by the Manpower programs by somewhere in the neighborhood of 150,000 by the administration`s own estimates and some people suggest it may be as high as 250,000, I think flies in the face of that. We are also hurt especially, I think, by the reductions in the housing programs and the failure, for example, to maintain or even increase a program such as the 312 loan program, which is a program that has worked and made it possible for many persons who normally would not be able to repair their homes to do so. That hurts us particularly. The fact that the summer youth employment program is being reduced by almost 200,000 positions is also one that we will all feel during those summer months when there are so many millions of young people in this country looking for employment.

MacNEIL: Taking the poorer members of society as a whole, the administration says it is going to spend an additional $4.5 billion, as Jim outlined at the beginning. Does that not offset some of what you`ve said?

HATCHER: Well, I think you have to understand what that really means. In a sense, what the administration is suggesting is that by asking for immediate reductions in outlays insofar, for example, as

Social Security is concerned -- that is, the reduction of the age limit for benefits for dependent children from twenty-one to eighteen and other reductions in Social Security -- that they will then expend more monies than in fact they are asking for in terms of budget appropriations. But that catches up with you. I feel that we will feel the crunch of this budget in 1981, roughly in 1981, when there are no more reserves to expend in terms of outlays.

MacNEIL: Okay. Vernon Jordan, the head of the Urban League, said last week that this was going to be a crisis year for the blacks, looking ahead to what he expected the budget to be. Would you call it that?

HATCHER: I think that`s true; I think it`s going to be a crisis. I think it`s a tragedy also, because very frankly, the first two years of this administration have given new hope to minorities, new hope to cities; the economic stimulus program, the urban policy -- all of those were things that have caused people to begin to rethink their attitudes about cities that were so negative during the Nixon-Ford period. But now it appears that the administration is about to do an about-face. And of course we have to look at the fact that the logical place to appeal such a decision would be to the Congress of the United States. But if what Senator Proxmire has just said is in fact the general attitude prevalent in the Congress, then it will be very difficult there. So I see this coming year, and in fact the next few years, being extremely difficult for minorities and also for cities.

MacNEIL: Thank you, Mr. Mayor; we`ll come back. Jim?

LEHRER: Now to the politics of budget-making, this one in particular, and to Jack Nelson, Washington bureau chief of the Los Angeles Times. Jack, what kind of basic political judgments went into the making of this budget?

JACK NELSON: Jim, I think two of the major ones were stated here by Bart Rowen and Senator Proxmire. Number one, as Bart says, the administration realizes inflation is the number one problem in the country; all the polls show that. People are more concerned about that than anything else. And number two, as Senator Proxmire says, the Congress is probably even more conservative than President Carter on this issue, and I think they`re counting on Congressmen, particularly those who campaigned on budget cutting, to support them. Those are, I believe, the two major factors in the political decision.

LEHRER: And they believe without question that the majority of the people in the country support "fiscal restraint." That`s the watchword right now, right?

NELSON: I think that`s true, and also I think you have to remember that one of President Carter`s major campaign promises was that he was going to balance the budget, and so he`s now going to be able to say he is at least trying to deliver on one of those promises.

LEHRER: What kind of risks is the President taking politically?

We heard Mayor Hatcher`s position; there`s also the position that Senator Proxmire and I talked about in terms of Senator Kennedy. Is that the only risk, from, say, the so-called liberal wing of the Democratic Party, his own party?

NELSON: Well, I think basically that`s true, Jim. He`s not taking any risk in a general election; he`s taking a risk, if he is taking one, in the Democratic primary. And again, he`s not taking a risk from his major opponent, the one who appears to be his major opponent, and that is Governor Brown, because Governor Brown has positioned himself to the right of President Carter. But if he really is taking a major political risk it is there, and it is if the inflation rate is not slowed, even though the budget deficit maybe is held to a fairly low figure.

LEHRER: So politically this still must result in some result in terms of lowering the inflation rate, or it`s all for naught.

NELSON: Not only that, he runs the added risk of if there is a recession -- which, as Bart says, many economists say there will be by the end of the year or early `80 -- he could find himself running both with a higher inflation rate and a recession because, as we know, in 1974 and `75, when President Nixon was in office, the fact that there was a recession did not necessarily slow down the inflation rate. So he could have a higher unemployment rate and higher prices at the same time.

LEHRER: Jack, let me ask you this: just in sheer political terms

or White House dynamic terms, how did the President get trapped, if that`s the word, into this three-percent-above-inflation-rate commitment as far the defense budget is concerned?

NELSON: I suppose the main way that he got trapped was that after he held a meeting with the NATO allies, in order to persuade them to increase their defense budget outlays he said that we would increase ours by three percent. However, I do understand that there is some internal discussion and dissention within the administration that supposedly pushed him a little far in that direction. I think in retrospect he wishes he had had a little more flexibility and had not committed himself so solidly.

LEHRER: Okay. Thank you, Jack. Robin?

MacNEIL: Yes, let`s come back to the economics for a moment, gentlemen. Would it have made any sense, Bart Rowen, for the President to have budgeted for a recession -- the recession that so many private economists are predicting?

ROWEN: Well, I don`t think so. It would be pretty difficult for a President to say to the country, "We`re going to have a recession and we`re going to put you farther into it." He`s gone pretty far as it is to say, "You`re going to have a slowdown and we`re not going to do very much about it." So no, I don`t think that would have been an option that he could have followed.

MaCNEIL: Senator, do you have any comment on that?

PROXMIRE: Well, these forecasts aren`t all that sure. Fortune magazine, for instance, says there won`t be a recession. Many of competent people who`ve studied this carefully say there won`t be a recession. You just cannot predict when a recession`s going to come. All you can say is, in a free system we`re likely to have periods of recession, periods of expansion. And I think that Bart`s dead right, there`s no way the President of the United States can say we`re going to have a recession; once he says that it`s a self-fulfilling prophecy.

MacNEIL: Well, to come back on your earlier point, Senator, can you cut any more without making it more likely there will be a recession?

PROXMIRE: I think so. I think you have to recognize that here we have an economy that`s two trillion plus. We`re talking about cutting ten or fifteen billion dollars out of that, maybe one tenth of one per cent, or fifteen hundredths of a percent. That`s not going to have that much effect. Furthermore, the closer we come to balancing the budget the more confidence you get in the private sector; the more likely it is that interest rates may fall; the more likely it is that business may follow more expansionary policies. And I think that people feel so strongly, rightly or wrongly, that it`s necessary for the federal government to cut its spending that this is the best medicine the President can provide.

MacNEIL: Mayor Hatcher, what would you say to the argument which I guess the administration might make, that if they begin to get inflation under control, that will help the people you serve as mayor of Gary, Indiana as much as continuing federal programs which may be inflationary?

HATCHER: Well, I think that`s a valid argument; that argument has some validity. However, I think the administration`s own economists admit privately that if the Congress were to accept all of the reductions that the President is submitting in this budget and were to approve them without change, that would have an almost nominal effect on the overall inflation rate. The figure I`ve heard cited is maybe about two tenths of one percent effect on the overall inflation rate. And so I think we have to assume that much of what the President is doing with this budget is basically symbolic. And from that standpoint it may have some symbolic effect on the overall inflation picture. But the reality for so many people -- for example, for about 191 employees that I spoke to day before yesterday advising them that they would no longer have jobs unless something very unusual and unexpected happened-- the reality for them is not one of symbolism. It is being without a job, being without a means of supporting their families and supporting themselves. So I think my argument would be if these cuts were guaranteed to produce the kind of reduction in inflation that we all want to see take place, then that argument would have a lot more validity than it does.

MacNEIL: In administration thinking, Jack Nelson, is this largely a symbolic exercise, in terms of inflation? Or do they sincerely believe that it will actually make a difference?

NELSON: I think that they certainly look at it from a symbolic standpoint, there`s no question about that; but I also believe that Carter basically is a very conservative man fiscally. He was in Georgia.

Anybody who`s around him any length of time will tell you he believes that very deeply, and I think that he thinks it can have some positive impact other than just being symbolic.

ROWEN: Can I add a word to that, Robin?

MacNEIL: Yeah.

ROWEN: And it comes back to something Senator Proxmire said. I think there are real cuts in this budget. It may not be the most austere budget in the world, but it is a budget that has been cut back.

The total amount of spending increase is 7.7, I think, Senator, and if you take the inflation rate at seven, there`s only seven tenths of one percent increase in real terms. And then if you remember that the defense spending part of it is up a real three percent, what you come out with is that the whole non-defense part of the budget is absolutely flat; and if you then remember that the inflation rate probably will be a little more than seven percent in reality, it`s really been cut back. So that there are programs, as Mayor Hatcher suggests, that really have been cut back here, and the cuts in this budget will be felt across the country.

PROXMIRE: Can I respond to that very quickly?

MacNEIL: Yes, Senator.

PROXMIRE: We`ve had a fantastic increase in federal assistance for the cities over the last fifteen or twenty years. We`ve gone from 1957 when the federal government contributed about one dollar for every hundred dollars a city raised, to now when the federal government contributes about sixty bucks for every hundred dollars the cities raise. Just a mammoth increase, from two billion dollars to $85 billion. Now, what`s been the result? The result, just disclosed by a Brookings study that came out yesterday, by Dr. Nathan, showed that the cities are in worse shape, not better shape -- worse shape than they were before this colossal increase in spending. I`m saying we have to find a better way, that this is the beginning. It`s not much of a reduction, but it`s a modest reduction, and I think we have to find other ways of helping the cities.

LEHRER: Let me ask you quickly: Jack Nelson mentioned Governor Brown a moment ago as being on the President`s right. He`s proposed a Constitutional Convention to pass a constitutional amendment which would require the federal budget be balanced. Do you support that idea?

PROXMIRE: I don`t support that idea, but I support that idea that the governors -- after all, the governor of New York, too, said that the federal government has to learn that government should not be a growth industry; he`s for the federal government cutting back. That`s Governor Hugh Carey. Governor Brown, the biggest state in the union, says we have to cut back. No, I think this idea of having that kind of inflexibility and rigidity is a mistake. I think that that would be wrong, and I hope that Congress doesn`t pass it and I hope a Constitutional Convention doesn`t meet, which could be really mischievous.

LEHRER: Mayor Hatcher, what do you think about that idea?

HATCHER: To Senator Proxmire`s comments, I think it`s important not to mislead the public into believing that the present level of federal assistance to state and local government is up around the $80 billion mark. What that figure represents in actuality is mandated programs such as assistance to veterans and other programs that go to individuals, not to state and local government. So the amount of money that the federal government sends to state and local government directly to use to address the problems that they are confronted with is much lower than that figure. I suspect it may be as low as maybe half that figure.

LEHRER: What do you think of Governor Brown`s idea for a constitutional amendment requiring that the federal budget be balanced?

NELSON: Predictable.

HATCHER: Well, I think it`s unfortunate that Governor Brown has obviously moved in the direction that he thinks the political winds in this country are blowing. Obviously he learned a lesson, a quick lesson, from Proposition 13, that it`s better to catch up with the people that you`re leading and get out in front. And I think this is simply another effort to do that, and it`s unfortunate.

LEHRER: All right, thank you. Robin?

MacNEIL: Thank you very much, Mayor Hatcher, for joining us tonight. Thank you. Bart Rowen, Senator Proxmire and Jack Nelson. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: That`s all for tonight. We`ll be back tomorrow night. I`m Robert MacNeil. Good night.