The MacNeil/Lehrer Report; 1984 Budget Submission

ROBERT MacNEIL: Good evening. President Reagan today sent his '84 budget to Congress, an act The Christian Science Monitor likened to the kickoff in an extended football game. It may involve Congress, the White House and the nation in huddles, strategies and fourth-down dilemmas for the rest of the year. As outlined in the State of the Union message, the budget asks for a freeze on much domestic spending. Mr. Reagan wants to spend $848 1/2 billion in the fiscal year beginning next October 1st. That is $43 1/2 billion more than this fiscal year. By projecting a growth of only 1.4% for the economy, the administration says the gap between expenditures and revenue will leave a deficit of $189 billion.The freeze on nonmilitary spending will have the effect of cutting domestic programs by 3% while defense, although reduced, still grows at a rate of 9%. The freeze would affect some 4.3 million federal salaries as well as pensions. In addition, the budget proposes cost savings in Medicare, Medicaid and food stamps. Tonight, opening the budget football game. Jim?

JIM LEHRER: Robin, the next step in the budget process is for Congress to pick it apart, and that got underway immediately today. Congressman Leon Panetta, Democrat, and Senator Bob Dole, Republican, challenged Mr. Reagan's claim that a billion-plus dollars can be cut from the food stamp program. Congressman Dan Rostenkowski, Democratic chairman of House Ways and Means, challenged major cuts in any domestic social programs. Congressman James Jones, Democrat, chairman of the House Budget Committee, labeled Mr. Reagan's standby tax proposal unrealistic. House Speaker Thomas O'Neill said the Democrats would propose a $5- to $7-billion public jobs program. Republican Senators Dan Quayle and Orrin Hatch said they were working on a similar one that would cost only $2 billion. Mr. Reagan said again today he opposed any such program at any price. But clearly the most heard comment had to do with defense spending and the need to reduce its rate of growth from what Mr. Reagan has proposed. Those saying that today included some of Mr. Reagan's strongest budget supporters, foremost among them being Senator Pete Domenici, Republican of New Mexico, chairman of the Senate Budget Committee. Senator, you do not believe the administration's 9% real increase in defense spending will stand?

Sen. PETE DOMENICI: No, I don't. But I'd like to make this point.I don't think we have ever in the past, when the United States was in danger, approached military spending by saying you're spending too much on defense and not enough on social programs. So I don't think that's the issue. I think the issue has to do with the American economy and its recovery and whether or not we need, in order to adequately prepare ourselves in this very dangerous world, that much money. So I want to distinguish my comments from those who were saying it's unfair because there's too much in defense and not enough in social programs.

LEHRER: So you don't think it is unfair?

Sen. DOMENICI: No, I don't think it's unfair. My concern is, do we need it from the standpoint of the deficits that are going to occur in '85, '86, '87 and '88 so that in the context of the general welfare we can get a recovery. But I wouldn't -- I wouldn't want to be in a position, if I was on the social-program side, of defending the growth of social programs for the decade of the seventies, and indeed, '81 and '82, versus the growth in defense, and try to make the point that there was unfairness on the side of military growth, because I think the social-program people would lose that because the growth is tremendous in the social programs and on the downside until recently in defense. So I challenge whether or not, if our desire is to get a reduced future-year deficit, whether defense can take some additional cuts over those that the President has recommended, and from what I hear, in talking to responsible people, people who are very pro-defense, who are just as concerned as anybody in this country about defense, the answer is no, that we have to take some more out of it.

LEHRER: How much more?

Sen. DOMENICI: Well, I'm not prepared at this point to state how much.I would just give you a notion, and I don't recommend it tonight. But, for instance, at one point I said why don't we freeze budget authority for one year. That would mean that it would grow at about inflation plus 2% for one year, and then you'd be right back on the same track of growth. That probably won't work, now that I've looked at it, because so much of our budget is personnel and so much of it is committed to some weapons systems we know we're going to build. But obviously somewhere between that and Cap Weinberger's suggestion will be the right mark.

LEHRER: Well, as you know, the $8 billion that the administration has said they can get out of the defense budget comes in personnel and inflation and fuel. Where are the other places that could be cut besides those?

Sen. DOMENICI: Well, it's very difficult for me. I'm the Budget Committee chairman, not the programmatic chairman. I'm having a lot of trouble getting facts, but I'm digging. I think there's -- I break the budget of defense into three parts: strategic weapon system needs; all other procurement -- that's everything from trucks, additions to the officers' quarters at all the bases, to various kinds of aircraft, ships and the like; that's the next, and then personnel. Frankly, I think personnel should get enhanced and certainly not cut very much, and I am very fearful that if you cut too much out of strategic, it's only about 10 or 11 percent of the procurement. But I think in the great middle procurement area that we ought to take a look at stretching out some of those things that might be growing at more than that 9% that they showed there. I think some are growing at 20.

LEHRER: Senator, generally, do you agree with the basic priorities that the President has -- that is included in the President's budget -- a reduction of 3% in domestic spending overall?

Sen. DOMENICI: I think the President has given us a pretty good blueprint on the domestic side. I note that some before the ink was even dry were calling it unfair, favored the rich against the poor. Many of those things were said before the -- before anybody could even analyze it.But for instance, let me give you an example. He's saying in the basic appropriated domestic programs, which are over $100 billion, he's saying freeze the total level, but you do what you want within the myriad of programs within it. Raise some if you want, lower others. But for those means-tested programs, contrary to what's been said -- SSI, food stamps and that kind -- there are small reductions in that, if any at all, so that we would be at liberty, if we want to raise some of those, we can, but we'd have to find some other areas to cut. I would also note that there's a jobs bill being bantered around, maybe $5 billion in so-called infrastructure construction. This budget has $8 billion in new construction just in highways, airport improvement, veterans' hospital improvements and the like. I think if you look through it all, there may be as much as $10 or $11 billion --

LEHRER: Already in there.

Sen. DOMENICI: -- already in there, but, you know, you'll never have enough for those who think that you can invent jobs. The approach of this budget is to get the economy growing, not at the 1.4% which was described, because that's year over year. This is supposed to grow at about 3.5 and then get up to four and stay there. That will put more people to work, and give America more confidence so that other people will spend than any jobs program that you're going to invent.

LEHRER: Thank you. Robin?

MacNEIL: With 26 new members in the House, the Democrats expect to have new clout in budget and tax matters in this Congress. Congressman William Gray, a Pennsylvania Democrat, is a new member of the House Budget Committee and vice chairman of the Congressional Black Caucus. Congressman, you heard the Senator say that this is a pretty good blueprint on the domestic side. How do you feel about the priorities in this budget?

Rep. WILLIAM GRAY: Well, I would have to disagree with my colleague in the Senate, that it's not a very good blueprint unless you want to have a continuation of the same economic policies that we've had for the last two years. I think that, although the President in his State of the Union address quoted the rhetoric of Franklin Roosevelt, I think when you really look at it, we still have no changes in the basic direction of economic policy. There are no substantial cuts in defense. There are still the continuing phrases of we must cut social programs -- AFDC, food stamps, nutrition programs for children, job training programs for senior citizens, like the Title V program, which Congress last year, in the House, by a vote of over 403 to about five, said to the administration, no, that's one area we don't want to touch.

MacNEIL: So you don't agree with Senator Domenici that these cuts in the domestic programs you've just mentioned are very small or insignificant?

Rep. GRAY: No, they are not very small and insignificant, particularly when you reflect upon the cuts offered in the '82 budget and also in the '83 budget.

MacNEIL: But do you agree with the Senator that the President is really saying, "Look, we've got to keep domestic spending down by something like 3%, but you choose the priorities"? I mean, it's really up to the Congress, the Senator said, to choose what you cut and what you don't?

Rep. GRAY: Well, I think if you look very carefully you will see that although the President is saying that, but when you actually look at the individual programs and the proposed cuts, what you will find is a superficial proposal that will get right at the core of many of the social programs.

MacNEIL: So you think they would hurt. Do you think the House, with the new Democratic strength, will go along with that side of it?

Rep. GRAY: No, I do not believe that the House will go along with the budget targets that have been given by the administration. I think you will see some adjustment, particularly in human services programs. I think also you will see some significant cuts in defense spending far beyond the token cuts that the administration has offered. I think if we are really talking about economic recovery, and I would agree with the Senator that if we are going really have economic recovery, we've got to lower those deficits in the out years. And if you don't start now, you're not going to be able to do that. And I think that you've got to make substantial cuts and even look at weapons systems like the MX, the B-1 and the F-18.

MacNEIL: What would you consider substantial cuts in the defense budget?

Rep. GRAY: I think we'd be talking about a cut somewhere in the fiscal year of 1984 of about $38 billion in budget authority, $22 billion in outlays as minimal. And I would even suggest that we might even want to look at the 1983 figures and see if there are some items there that ought to be cut, such as the R&D for the MX missile, which is over $2 billion.

MacNEIL: Would you like to give me, in shorthand terms, what kind of a package do you think the Congress -- would you bet right now -- when all this process is finished, what kind of a budget package is the Congress likely to give back to the President?

Rep. GRAY: I think on the House side you're going to see a package that will reflect fewer cuts in human services programs that --

MacNEIL: But some cuts?

Rep. GRAY: But perhaps some cuts. I think, secondly, you will see a much more significant cut in defense, at least about $15 to $18 billion. I think also you might see some changes in revenues, such as modifying the third-year tax cut; particularly, I would like to see it modified so that it does not apply to the first $50,000 of income. And I think also the indexing, which, by the way, I helped to support in 1981, in the Congressional Black Caucus budget, but of course that was based on high inflation, and I think it's a luxury that we can't afford now in light of these huge deficits that we've got to bring down if we're going to speed economic recovery.

MacNEIL: Well, thank you.Jim?

LEHRER: A response now from the administration to Senator Domenici and Congressman Gray's points. It comes from Lawrence Kudlow, chief economist for the Office of Management and Budget. First, Mr. Kudlow, on this question of defense spending. Everybody, apparently, but the President believes that $8 billion in reduction in terms of the increase is not going to be enough. Senator Baker has said there's going to be a donnybrook over the issue. Do you agree?

LAWRENCE KUDLOW: Well, I don't know if everybody but the President agrees with his program. Our view, and I think this was underscored today by remarks by Secretary Weinberger, suggest --

LEHRER: I forgot to include him. Secretary Weinberger and the President. Okay.

Mr. KUDLOW: Those remarks suggested, again, that we feel that $55-billion reduction over the five-year budget planning horizon is a substantial reduction. It is about as far as we could go under current circumstances of lower inflation. It includes, of course, some of the pay and retirement reductions that are being absorbed elsewhere in the budget. Military will take its share. But principally I think the issue on military spending is we underfunded it, underinvested in national security for many years during the 1970s, and we allowed our national security posture to fall in budget terms from about 9% of gross national product down to less than 5% of GNP. Now, we've got to correct that, and unfortunately we have to correct it in the 1980s at a time when there are a lot of pressures on the budget. So my sense is, in order to accommodate our strategic requirements and our modernization requirements and so forth, we've got to stay with what we've proposed.

LEHRER: You're an economist, Mr. Kudlow. You heard what Senator Domenici says, the issue now is the recovery of the economy and the deficits, and that's the number-one priority. But that, you think the two can be done?

Mr. KUDLOW: Well, I fully agree with Senator Domenici that economic recovery and sustained non-inflationary growth is our number-one priority.I would only add to his remarks that we feel the budget plan we have submitted, which does suggest a downward trend in deficits in the next five years, from very high levels that nobody's particularly comfortable with down to much lower levels, we feel that this is a good beginning. We've advanced the process another step. We've followed through from the progress we made last year, and we feel that this is going to help economic confidence and help speed economic recovery, even with this defense component. So our sense is we have a plan and the plan is workable. That's not to suggest that the administration won't carefully consider alternatives forthcoming from the Senate and the House Budget committees.

LEHRER: Even on defense spending?

Mr. KUDLOW: Well, I don't want to certainly indicate any changes in anything right now. The ink is barely dry and we feel this is a very realistic, prudent, workable document. I would only suggest that, as we have in the past two years, we want to communicate and discuss very carefully any of the options or alternatives that come out, and keep the dialogue going.

LEHRER: Congressman Gray says you are cutting the core right out of many of the most important social programs the federal government participates in.

Mr. KUDLOW: Well, I can't agree with that. It's an important perspective that the Congressman has expressed, and I understand that there are those who share his view, but we do not. We feel on the domestic side of the budget that the growth in the last 10 or 15 years has been excessive and extravagant. This growth has absorbed our economic resources from the private sector, if you will. We've been absorbing capital rather than accumulating and building new capital. We have got to shrink the size of government, and programs that were growing seven, eight and 10 percent in real terms, programs that were absorbing up to 10 and 12 percent in GNP on the domestic side have got to be slowed down. Now, I would, however, suggest a somewhat different view on this, and that is, we are allowing for substantial increases in the budget for these accounts. It's not as though we are eliminating those programs. We are certainly not. And I want to point out that in one particular key area -- that is, aid to elderly citizens of all kinds -- we still have, in this FY84 budget, over $250-billion worth of assistance of one kind or another. In areas of jobs and employment and training, for example, we have better than $5-billion worth of assistance. We've actually made increases in certain areas, such as Head Start and foster care and the like. So that it's not as though we're sweeping away these programs. We're keeping them. In some cases we're adding to them. But mainly as an overview. The notion of a freeze, the notion of budgetary control and restraint in a period when we have a serious fiscal problem, in a period when we know we've got to reduce that fiscal problem if we're going to generate economic recovery, we have to pull back, we have to show some restraint. So we feel that our budget meets those needs as realistically as possible.

LEHRER: Thank you. Robin?

MacNEIL: Senator, Mr. Kudlow says the administration, mentioning the President and Secretary of Defense, say the cuts in defense are about as far as we can go. How can you, as a Senator hearing that, and a Republican Senator, argue with them?

Sen. DOMENICI: Well, you know, we're talking here about a defense budget that's going to go from this year's appropriation, it's going to go up around $35 billion in budget authority, which begins many new programs that will spend out at a much higher level in the out years. My concern is not even that, not the '84 level. My concern is that the defense budget, as you -- let me back up for a minute. The significance of this budget is that it's wedged. It's wedged in this way. You start savings that are small and they grow very large in the out years. Not the ones the Congressman has expressed concern about, because I'm prepared to say that most of those could be solved. The wedged savings have to do with such things as pensions, such things as solving the Social Security issue, where you start small and it gets bigger -- those kinds of programs. That's the important aspect of restraint. You go that way. The problem with the defense budget, that it's imposed on top of it and goes the opposite way.It starts out in expenditures very small and gets very, very large. So you negate much of the benefit that you get from restraining a broad spectrum of entitlement and uncontrollable social oriented programs, most of which are not WIC, or the kind of program where you aid women, infant and children. They're not the elderly, community-center type. They're those that are automatic such as Medicare, which is growing at about 13% a year. If we could get those solved, we could certainly fill those other programs that have concerned Bill so much. But the problem is that you imposed defense on top of it, and you got these huge deficits out there.So my answer is this: what can we afford within that framework, and then ask our experts, what harm will that do? Now, that's what we can't get done -- ask -- tell them, "Here's a new number."

MacNEIL: Why can't you get that done?

Sen. DOMENICI: Well, it's very difficult. This is a $300-billion item with hundreds and hundreds of accounts. But it's the only way we're going to solve the problem, and some of us are going to dig and dig and dig until we get that done. And we are not the kind of people who want to cut defense until the risk is severe for this great democracy. We just want to make sure that everything that's in there is absolutely needed under these circumstances.

MacNEIL: Mr. Kudlow, the Secretary of Defense said before he allowed these recent cuts that any cuts would harm the national defense. He has again said that any cuts further than these would harm the national defense. Does that mean that there is no flexibility in the administration position on the defense budget?

Mr. KUDLOW: Well, I'm not a defense expert. I will only underscore what I think is the Secretary's view, and that is, there is a continual search for management and efficiency savings in the DOD budget, and as conditions change that search continues.And I think the fact that he's come up with $55-some-odd billion in savings is very significant. I will add to the overall debate that we feel that the budget plan in its entirety is a balanced and realistic plan. We have a realistic set of economic assumptions, and we have a balance insofar as the budget restraint measures with respect to the freeze for domestic spending, the structural reforms of some of the large entitlements, the defense savings, and also the deficit insurance tax trigger. We think you have to view this document as a balanced overall attempt to move our economy in the direction of growth and to speed and enhance the prospects for recovery. Defense is very much a part of this overall balance, and I think at this point in time the administration's position is clear, and we will wait to see what the various responses and concrete alternatives are coming from the Congress.

MacNEIL: Thank you. Jim?

LEHRER: Senator Domenici, Congressman Gray said a moment ago that this is essentially a continuation of the Reagan economic plan that isn't working. Do you agree?

Sen. DOMENICI: Not at all. Not at all. I think that first of all the signs in the economy today are very upbeat. I think we're just kind of waiting there, and many millions of Americans are anxiously anticipating seeing some good signs, in which event they're going to change their buying habits, change their investing habits and --

LEHRER: Well, everybody was saying that a year ago.

Sen. DOMENICI: No, but we didn't have the signs we have this week.

LEHRER: Congressman Gray, what do you think about that?

Rep. GRAY: Well, I'd have to strongly disagree with Mr. Kudlow, particularly when he talks about social programs have not been cut. In this budget that's being proposed and came to Congress today we're talking about a low-income energy assistance cut of 34%. We're talking about a cut in the COLA for retired citizens --

LEHRER: Cost of living increase.

Rep. GRAY: Cost of living increase. We're talking about a cut of 8.9% for AFDC. We're talking about a cut of 6.3% in Title I education, and also in food stamps and child nutrition a cut of $1 billion. And it seems to me to say that there's no cut is just not looking at the facts and the figures. There are cuts. And then I'd like to go on and point out that when you talk about maintaining the course, if you maintain the same tax policy, if you maintain the same high military buildup -- which, by the way, is now projected over the next five years not to cost $1.6 trillion, but $1.8 trillion -- and then look at the economy, how bad it is, over 11 million people unemployed, you're cutting those programs that provide help for those people. And it just seems to me that that's not realistic priorities, and it's not going to help this country to get moving. And, finally, one other disagreement that I have is that this administration talks so much about lowering the federal presence, and this is particularly important with reference to deficits. Yet, if you look, what you will see in the 1984 budget, the 1985 projection, '86, '87, that the percentage of federal spending for the GNP has increased significantly under this administration. So in terms of the capital buildup that Mr. Kudlow was talking about, I have very grave questions and doubts as to whether that's going to work, and I don't think we have seen supply-side work over the last two years, and that's why we've got some of the problems that we have. The cut in revenues and the tremendous defense buildup. We've got a gap of income and outgo, and what we're doing is we're turning to the elderly, we're turning to children, we're turning to those who are in need of job training and job programs and saying, "You have to wait and hopefully there will be a recovery."

LEHRER: That's huge condemnation of your program, Mr. Kudlow.

Mr. KUDLOW: Yes. Well, I would just observe that I think many of us have learned that the big government model that was in full swing in the late '60s and '70s didn't work. We couldn't possibly expand the size of the federal government --

LEHRER: Well, what about the specifics? I mean, he -- it jibes with what I read today, too. I mean, there are programs that you all have proposed being cut.

Mr. KUDLOW: There's no question that we've made policy reductions in a variety of areas. The only point I wanted to stress before is that we've also made some increases in some areas, but particularly, we feel that there is enough in this budget to enhance the livelihood and the condition of the truly needy, and we don't want to go back to this big government model that put us in the inflationary dilemma in the first place.

LEHRER: We have to leave it there, gentlemen, sorry. Robin?

MacNEIL: Yes. Senator Domenici, Congressman Gray, Mr. Kudlow, thank you all for joining us tonight. Good night, Jim.

LEHRER: Good night, Robin.

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