The MacNeil/Lehrer Report; Budget for 1983

ROBERT MacNEIL: Good evening. President Reagan formally sent his 1983 budget to Congress today and it was hard to find people who liked it except speculators in U.S. dollars. The dollar rose on overseas markets on the expectation that the higher deficits the budget projects would mean higher interest rates. But on the same expectation Wall Street gave the budget a sharply negative reading, the Dow Jones Industrial Average falling nearly 18 points with many commodities following. Investors were reacting to dire predictions from some leading Wall Street figures, on of them Felix Rohatyn of Lazard Freres and Company said high deficits will push interest rates higher until the economy really goes into a nosedive. In the political world, Democrats dismissed the budget as "Alice in Wonderland" or "countryclub" economics while Republican leaders acknowledged that it faced a long, hard slog in Congress. Even as he signed the budget document in a White Houseceremony the President found himself defending it. "It is not true," he said, "that it is balanced on the backs of the needy." Tonight, with a top budget office official and important players in Congress, the budget battle begins. Jim?

JIM LEHRER: Robin, those interested in the nitty-gritty of the Reagan budget have had the weekend to go through the details. Most newspapers had extensive coverage of the budget's specifics in their Sunday editions, with equally extensive followups today. Suffice to say, then, that it's a budget with few surprises. Defense spending is the major area of increase; foreign aid also gets a substantial increase. The only domestic agency to receive a budget boost was the Department of Interior. For the rest it's mostly decreases or holding at the status quo except for a few outright eliminations such as the Departments of Education and of Energy, the Legal Services Corporation which provides legal aid to the poor, special milk and summer feeding programs for the children of the poor, and public service jobs under the Comprehensive Employment and Training program, among others.The President at this point is only the proposer of the budget, of course; except as a persuader he doesn't get involved again until Congress passes it back to him for signing. The question is what he'll get back, and that's what we explore now with three members of the House, each with a different perspective on this budget. They are Leon Panetta, Democrat of California, a key member of the House Budget Committee and of the Democratic leadership on budget matters; Phil Gramm, Democrat of Texas, a leader of the "boll weevils," that group of conservative Democrats who helped Mr. Reagan's first budget and tax bills through last year; and James Leach, Republican of Iowa, a prominent member of the moderate Republican group known as the "gypsy moths." Gentlemen, and beginning with you first, Congressman Panetta, a president uses a budget to set his governmental priorities. Do you agree with those priorities in this new Reagan budget?

Rep. LEON PANETTA: No, I don't because I think he's failed to address the key problems that exist in our economy. He's failed to address the issue of the deficits. We're talking about record deficits over the next few years and possibly no balanced budget well into the end of the 1980s. We're talking about a failure to address the unemployment problem in terms of trying to provide any job training. As a matter of fact, in this budget he cuts job-training funds that much more. And it, I guess, fails on the basic premise, which is fairness. Are we being fair in terms of the American people or are the same people carrying the burden who carried it last year -- the elderly, the disabled, the students, the children. Those were the ones who carried the brunt of the cut last year and they're being asked to carry the brunt of it again this year without looking at defense and without looking at revenues. And I think that's wrong.

LEHRER: Congressman Leach, what is your reading on general priorities?

Rep. JAMES LEACH: Well, I don't sense any great mood in the country to return to the old days of simply adding more money to more programs, but I do think that this budget is unbalanced, and I do agree with Leon that it's a bit unfair. It's unbalanced with a large deficit, it's unfair in the sense that we're adding $33 billion to the defense budget and cutting $26 billion more from social programs. I personally think we're going to have to reorient priorities more than anything, and it's that fairness, the priorities, that are more important than probably the deficit itself, although the deficit is a very serious problem.

LEHRER: Do you think the budget is fair in your list of priorities, Congressman Gramm?

Rep. PHIL GRAMM: Well, I think the President has given us the only concrete proposal to try to reduce the deficit. If I have a concern it's that he didn't go far enough in trying to reduce federal outlays and enhance revenues to allow us to bring the deficit down and with that bring down interest rates. I have to find it somewhat amusing that we continue to talk about fairness in social programs when, even if all the President's budget cuts are adopted, we're still going to be spending twice as much on social programs as a percentage of national income as what we spent at the very height of the Great Society under President Johnson.

LEHRER: So you just reject the fairness argument of Congressman Panetta?

Rep. GRAMM: I think it's important to remember that the people that they're considering the budget to be unfair to are the victims of the inflation and the unemployment produced by the high interest rates and the deficits of the past.

LEHRER: Congressman?

Rep. PANETTA: Well, the fact is that -- and I've heard this argument before that somehow they're maintaining these programs and they really aren't hurting people. Last year, let me make clear, that 25 million Americans -- 25 to 30 million Americans were impacted by the cuts. Those were the elderly on Medicare, those on Medicaid, students in the student loan program. There were about a million students that were impacted. In this budget they're projecting something like two million students will be impacted by cuts in student loans. There were cuts in programs relating to housing, to transportation -- down the line. Those people were impacted. If you ask them whether they were hurt by the cuts they're going to say yes, they were hurt by the cuts.

LEHRER: And you're saying the same people are being hurt again on the second budget?

Rep. PANETTA: We're asking exactly the same people to bear the major brunt of these cuts in this budget.

LEHRER: You agree with that, Congressman Leach?

Rep. LEACH: I do in partial measure. No doubt whatsoever that we cut some programs in the last fiscal budget, but this year we're tripling the cuts that were made last year for many, many programs and I personally feel 1982 ought to be year of consolidation and correction and taking what was good in the 1981 administration approach, then correcting it, consolidating it. But it shouldn't be a year for more social experimentation.

LEHRER: Congressman Gramm, both gentlemen -- both Congressman Panetta and Congressman Leach have mentioned defense cuts. That's the other element of the fairness problem that they raise -- that the social programs are taking the cuts and that defense is not. Where do you and your fellow boll weevils stand on that issue now this year?

Rep. GRAMM: Well, I think our primary concern at this point is with the deficit and with interest rates. I don't think we're interested in trimming defense or the growth in defense as a substitute for the cuts in domestic programs the President has proposed but as an addition to those cuts. And I certainly would be willing to look at the broad range of defense spending and at revenue enhancement as well. So my primary concern now is assuring that we gain control of the deficit, and I'd just like to say that in terms of cuts I think student loans are a perfect example. The son of the president of General Motors would have qualified for a student loan last year. We set an eligibility requirement at about $30,000 a year. I don't think it's unfair to the taxpayer to ask families with incomes that high or higher to pay for their children to go to college.

LEHRER: Now, Congressman Leach, you said a moment ago that you were not that concerned about the deficits problem. I assume that you do not agree with Congressman Gramm that that's a number-one priority?

Rep. LEACH: I didn't mean to leave that impression. I'm very concerned with the deficit, but I think the bigger issue is fairness. And I would stress that this defense budget is out of hand. When you increase defense spending as gigantically as proposed -- it's going to go from 24% of the federal budget to 37% in a six-year time frame -- that is staggering. It means that for a young high school graduate it could be that the only job opportunity he's going to have is to enlist in the army. Enlistment in the army should be an attractive alternative, but it shouldn't be an economic necessity.

LEHRER: Congressman Panetta, speaking of alternatives, is the Democratic leadership going to come up with a firm alternative budget?

Rep. PANETTA: I believe the leadership will come forward with that, either as a position of the leadership or in the context of the alternative that Chairman Jones presents in the Budget Committee. I believe that there are going to be some important elements that'll be part of that. Clearly, defense has to be included. Clearly, we have to look at the revenue piece. We passed a tax cut last year, very frankly, that I don't care who you talk to, the feeling was that the Congress went too far.

LEHRER: That's the across-the-board, three-year tax cut.

Rep. PANETTA: That's correct. We're talking about virtually a $740-billion tax cut over the next five years. We're facing a revenue hemorrhage as a result of that. I think we have to look at the tax cut and determine what elements can be eliminated, how we can tighten up on that, and look at other sources of revenue.

LEHRER: Are you in favor of tinkering with the three-year tax cut?

Rep. LEACH: I'm in favor of tinkering with part of the tax bill but not the individual tax reductions. I think it was a scandal and, frankly, it escalated on both sides -- both parties deserve responsibility to reduce the windfall profits tax on the oil companies. I think the largest tax scandal in American history is this new notion that through very sophisticated leasing provisions that companies that lose money can sell their tax credits to those companies that earn a profit. We ought to look at those elements and change them. That will make a significant dent in the revenue side, but of course it won't balance the budget by anyone's current projections.

LEHRER: Where would you go to get "revenue enhancements" -- otherwise called taxes -- Congressman Gramm?

Rep. GRAMM: Well, first of all, I'm opposed to any tinkering with the basic 5-10-10 tax cut for individuals or the 10-5-3 for business. That represents the cornerstone of our whole recovery program. And I think in essence that ultimately we've got to gain control of the deficit by controlling spending. Taxes doubled between 1975 and 1981 and yet the deficit grew every year. The problem is a spending problem, not a taxing problem. So I think first we need to get the spending cuts the President asked for. I think we need to look at defense and try to trim the growth there. And I think we need to look at a broad range of options including sales tax, the so-called "sin taxes." I think we need to look at property disposal and the possible selling of gold. I think we need to look at the possibility of selling off, for example, military installations on the beach in Hawaii, in the most prime land in San Francisco. I think we ought to look at a broad range of options. But ultimately the solution is in controlling spending.

LEHRER: Thank you. Robin?

MacNEIL: The administration has already begun a mammoth effort to sell the budget mix as essential to the President's economic recovery plan. And one of those heavily involved will be Edwin Harper, deputy director of the Office of Management and Budget. Mr. Harper, this budget has been portrayed by some of its critics already as a very risky venture for the President, both in terms of what it might do to the economy and to him politically. Recognizing that you don't make the political decisions, how do you respond to the criticism that it's very risky because these projected deficits, even if they turn out to be only that, threaten to send interest rates up and to throw the whole equation further out of whack -- the equation of recovery and so on?

EDWIN HARPER: Well, I don't believe that the deficits per se deserve to be judged on whether or not they're risky. I think what we need to be considering is where are we and what is the logical thing to do at this point in time? I think it's important to understand the fundamentals that are behind the situation in which we find ourselves today. And that is that the recession we're dealing with is one that didn't start in October. In fact, I would argue it didn't even start last July but in fact goes back to early 1979. Look at some of the fundamental economic statistics since that time. You find that employment [sic] has averaged during that period well over 7 1/2%. Meanwhile, our real GNP has been less than 1%. Industrial production has been negative -- I believe about 5%. So we've been dealing with a very weak, soft economy. When the President first came into office he sounded the alarm; he alerted us all to the fact that this economy is in a mess. He came up with a budget plan, a good, sound economic plan of four parts: to bring spending under control, to do something about inflation, to have tax cuts that are going to stimulate investment, to increase productivity by reducing deregulation [sic], and to work with the Fed to have a stable monetary policy. That is fundamentally a logically correct program. At that time he promised this as an integrated, four-year program.

Now what we didn't forecast and, frankly, nobody else forecasted either was the timing and the severity of the recession which we're facing now. That recession accounts for about two-thirds of the increase in the deficit over our earlier forecast. The bulk of the remaining deficit is composed of two things -- those additional savings that we said we were going to identify and which we have made proposals to the Congress here, and other savings proposals that we proposed to the Congress and the Congress chose not to act on last year. So thus I think that the current budget deficits that we have need to be seen in that proper perspective.

MacNEIL: But you -- I don't know whether you personally, but certainly OMB has reported and other people in the administration, in the Treasury, urged on the President when preparing this budget that either there should be some decrease in defense spending or some increase in revenues as you've just heard discussed by the congressmen. The President rejected those, as everybody has acknowledged. Do you now feel that this is a sound -- not being the budget that the Office of Management and Budget in the first place recommended to the President, how can you come out and sell this as sound?

Mr. HARPER: Well, the job of the Office of Management and Budget is specifically to develop every conceivable reasonable option for the President to consider. If we hadn't proposed those options for his consideration, we'd be remiss in our work. The President makes the final decisions about the budget, and I think he's made the right decisions.

MacNEIL: Are you going to be able to defend this in Congress when some of you yourselves -- and, again, I don't know as a matter of fact whether you personally did -- recommended that the only way to get this into line would be to increase some taxes to produce some more revenue?

Mr. HARPER: Well, I think that we have a good, strong budget plan that we're presenting to the Congress. I think it forms an excellent framework for discussion. As a matter of fact, in the plan itself the President had proposed a number of adjustments, eliminating some obsolete tax credits, other things like that which, I think, will make an impact on the revenue side.

MacNEIL: Well, you call it "an excellent framework for discussion." Does that mean that you expect the Congress to do a great deal more than just tinkering with it? You're expecting very major revisions?

Mr. HARPER: Well, I expect that the Congress will do much as it did last year and that is that the President proposes and the Congress disposes. And I'm sure that we'll benefit a great deal from the ideas of the three gentlemen at this table, as a matter of fact, during that process.

MacNEIL: Well, is it offered in that kind of conciliatory spirit, or is it offered in the sense that if they do any major tinkering with it they're going to seriously interfere with the President's economic recovery hopes?

Mr. HARPER: Well, I think certainly any major change in the fundamentals that the President has proposed -- the three-year tax credit -- that would certainly be unacceptable, and I frankly don't believe anybody's got a better alternative at this point in time.

MacNEIL: Well, thank you. Jim?

LEHRER: Congressman Gramm, have you gotten any signals -- I mean, you're an ally of the White House. You and Mr. Harper are on the same side on this. Have you had any signals from Harper or otherwise that, "All right, look. The President didn't want to recommend any defense cuts, but if you can go in there and that's the only way we can get this thing down, we want to get the deficits down, too -- that maybe the President can live with a few defense cuts"?

Rep. GRAMM: I haven't got those signals. I think it's important to remember that last February, when the President came out with his first cut at the budget, conservative Democrats went to the White House, told the President we supported the cuts, suggested $16 billion of additional cuts. He took eight of those, and when I introduced Gramm-Latta we took $4 billion more. So we changed the President's proposal last year, we cut more, and I'm hopeful that we can do the same again this year.

LEHRER: In defense?

Rep. GRAMM: Well, we cut more in terms of basic domestic programs. It's important when we're talking about these massive growths in defense to look at defense as a percentage of GNP in the 1950s and '60s as compared to the projections that are made now. Defense is drastically down as compared to the 1950s and '60s.

LEHRER: Congressman Leach, you're a Republican. Do you believe the President in the final analysis will accept some cuts in defense?

Rep. LEACH: I think he'll have very little choice because I think Congress will have to enact some. But I would like to stress, as we go back in this debate, one of the reasons we're where we are is that we have an enormous tax cut that is in no small measure the responsibility of the Congress. And it was we in Congress that added all these egregious add-ons. The original proposal of the President of the United States was much more reasonable than the final product, and I'm just hopeful --

LEHRER: Reasonable in what way, sir?

Rep. LEACH: It was a lower tax cut, it was aimed more directly at individuals and at responsible areas of corporate tax cutting. The add-ons got put in by the Democrats proposing things, the Republicans counterproposing. All sorts of competitiveness that can only be described as nefarious. Therefore I'd like to say that we can't sit and just simply blame Ronald Reagan. It's ourselves that we have a lot to look at. When we come to this particular spending issue, I think Congress is going to make a major difference, and I'm only hopeful that we do the reverse of what we did in 1981 -- that we come out with more responsibility, not less.

LEHRER: Do you agree with that reading, Mr. Harper, of Congressman Leach that actually what came out of Congress' first go-round was as much Congress' responsibility as it was the President's?

Mr. HARPER: Well, the President certainly proposed the basic framework of the three-year tax plan and that, indeed, Congress has all the votes on what finally becomes law.

LEHRER: No, but I mean -- we're talking about the end product now. The end product of what you're now working with. Take Gramm-Latta. I mean, were you pleased with what came out of that?

Rep. GRAMM: Well, we passed it by only two votes in Gramm-Latta II so we got all we could. Maybe we should have gotten a little more and lost that one vote. But --

Rep. PANETTA: Well, let me comment on that because I think it's really a misconception here. There's no question that the basic program proposed by the President certainly with regards to the budget cuts was adopted by the Congress. There's no question about that. The tax cut, no matter how he initially proposed it or how the Democrats initially proposed it, the administration designed the package that finally went to a vote in the Congress. So it was clearly their package and there was a promise based on that package being adopted. The promise would be that there would be immediate productivity developing in the economy, that we would certainly not go into a recession, that there would be stabilized unemployment, and that the deficits would go down. We'd be moving towards a balanced budget. The result of that strategy has been just exactly the opposite. We're in the middle of a recession, we're having high unemployment, and we're seeing interest rates that are still high and we have record deficits.So all of the promises that were made based on that strategy have simply not turned out.

LEHRER: Mr. Harper?

Mr. HARPER: I presume those are the same promises that were inherent in the proposals of the Democratic House leadership which had a tax-reduction program that as I recall in fact would have resulted in $3 billion more reduction in revenues over the next three years than in the President's proposal.

LEHRER: Yes, but what about the promise thing?

Mr. HARPER: Well, I think that the promise is, I think, one that -- my point was it was inherent as well in the tax proposals of everybody in the Congress -- both the Democratic leadership and those who rallied with the President around Gramm-Latta II to bring about the tax plan that was finally enacted.

LEHRER: Congressman Leach, do you feel that the -- first of all, do you buy the Harper history of the recession, as he told Robin a moment ago, or do you believe, as Congressman Panetta has laid it out, that the President's tax and budget plan of last year bear some of the responsibility for this recession?

Rep. LEACH: Oh, we as the Republican Party and the President have to bear some of the responsibility, but I'd like to go back here to stress -- the President of the United States when he came into office proposed a cut in individual taxes and a corporate depreciation change, and asked for nothing more. Congress added one whale of a lot more. On the spending side it was, frankly, the boll weevils in partial measure that demanded more for defense. It was Congress that said we had to keep the Clinch River breeder reactor. It was Congress that said we had to keep the subsidies on tobacco and sugar and peanuts. And I would say that it's Congress that has to bear part of the responsibility. And, by gosh, it's Democrats, too, Leon. Your leadership -- your wonderful liberal leadership -- demanded that we stick by the tobacco issue, demanded that we stick by the sugar issue. We in the Congress are responsible just as the administration is, and we ought to develop a responsible center to work together to try to get us out of this predicament.

Rep. PANETTA: Oh, I don't think there's any question that there are compromises that take place during the course of legislation before the Congress. But also, let's not make any mistake about it. When the President signed his name on the reconciliation bill, when he signed his name on the tax bill, he said, "This is it. This is my program. And when I put my signature on it, there are wonderful things that are going to happen in the economy." They haven't turned out so now we hear all of the excuses why they're not turning out. All of the rationale why it's not happening. The fact is the administration likes to take credit for the drop in inflation. Well, if they're taking credit for the drop in inflation, then they ought to take responsibility for what's happening in the rest of the economy.

LEHRER: Do you agree, Congressman Gramm? You can't have it both ways?

Rep. GRAMM: Well, let me say, first of all, I don't think anybody that was the least bit realistic thought we were going to reverse the impact of 15 years of taxing and spending in six months. I think it is clear that we have taken the first step but one budget does not a change in fiscal policy make. And I think basically we are in a recession. The recession clearly, in terms of the current economic facts, started in June. The program didn't start until October. So part of the credit for the decline in inflation belongs to Ronald Reagan. Part belongs to the steps taken by Jimmy Carter in his last year in office. But the point is we have made progress on inflation and we have made progress on interest rates, but we are in a downturn and the downturn, not the tax cut, is responsible for the deficit.And we have got to gain control of spending and bring interest rates down -- and high interest rates caused the recession -- if we are to bring down the deficit.

LEHRER: Robin?

MacNEIL: Congressman Leach, back to the unfairness issue that you see in this budget. It's an election year for all youmembers of the House of Representatives. You're a Republican -- the President's own party. Are there going to be enough Republicans who are really worried about this who feel they have to do something about a little more spending for jobs programs or something to break with the President in this election year?

Rep. LEACH: I think unless some Republicans break with the President we're going to see the Republican Party broken in November. We'll be lemmings rather than leaders for this country. We're simply going to have to be concerned that this very long, cold winter that we've had in the Midwest doesn't become a very hot summer in the Eastern cities.

MacNEIL: Would you consider that yourself?

Rep. LEACH: I would consider working very hard for a compromise consensus, moderate position, and I'm just hopeful that the Democratic Party doesn't come up with such an opposite point of view that the only alternatives will be a return to the spending liberalism of the past or the fiscal restraint that the President has proposed.

MacNEIL: How about that, Congressman Panetta? Is your party going to want to force these Republicans to the wall on this one, seeing some electoral advantage in a budget that may be unpopular with large areas of your constituency?

Rep. PANETTA: Well, we've already been discussing alternatives among Budget Committee Democratic members and also with the leadership, and I think the consensus is, what can we do to try to put the country back on some track of economic sanity? We're facing some very serious problems with unemployment, with the size of the deficit. These problems are too big to start worrying about whether we can restore the Great Society program or the New Deal, which I think a lot of Democrats recognize simply can't be done. We've got to move on to some new ideas, and we do have to address the issue of better management in the budget. We do have to include, as I said, defense and revenues, and we do have to look at productivity. And I think those are the essential elements that we could build a very strong bipartisan coalition on.

MacNEIL: Congressman Gramm, on the other end of the spectrum, does the spectacle of very high projected deficits frighten away some of the boll weevils like yourself who might, at that end of the spectrum, be threatening the coalition that helped the President last year?

Rep. GRAMM: Let me make two points. The so-called Democratic alternative cut $20 billion less than Gramm-Latta did, and the Democratic tax cut cut $6 billion more in revenues. So in no way would we be better off on the deficit had the President's program not passed. Secondly, the fact that we have a deficit, I think, emphasizes the importance of gaining control of spending. And despite all the criticisms, only Ronald Reagan has made a concrete proposal to do something about the deficit. I don't think he's gone far enough, but he's gone $50 billion, which is $50 billion further than any other proposal that exists anywhere.

MacNEIL: Mr. Harper, a final word. Is the White House confident that the coalition that worked last year is going to stay intact for the President on this one?

Mr. HARPER: Well, I think each piece of legislation attracts a new coalition. Many of the elements of the coalition of last year I think will remain intact. I think there will be others who will join us this year, and I think we'll look forward to an exciting and productive legislative season and come out with a budget.

MacNEIL: Are you planning a straight up-and-down, all-or-nothing vote as on the budget resolutions last year?

Mr. HARPER: I think it's premature to forecast legislative tactics.

MacNEIL: Thank you very much. And thank you three congressmen for joining us.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.