The MacNeil/Lehrer Report; Interview with David Stockman

[Tease]

JIM LEHRER [voice-over]: Tonight, a conversation with David Stockman, known offi-cially as the Director of Office of Management and Budget -- unofficially, as "The Young Slasher."

[Titles]

LEHRER: Good evening. Strategy was the number one item on most congressional agendas today, strategy for dealing with President Reagan`s economic plan. For Republi-cans the task was to find the best way to use its new Senate majority for quick action, and thus embarrass the Democratic-controlled House into following suit. That may be difficult. House Speaker Tip O`Neill today repeated his desire to go slow, saying there would be a revolution in the House if there is an attempt to rush it all through. The major strategic problem for Democrats remains, though, to make their objections to the President`s plan without getting labeled obstructionists. And the big one for the Republicans: how to turn the dramatic boldness of the Reagan approach into a momentum that forces Congress to give the plan a chance and quickly. The administration`s emphasis -- the pitch -- is on the package. Keep it together: the tax cuts and the spending cuts. It was the message repeated over and over today by officials in appearances before congressional committees, foremost among the officials being OMB Director David Stockman, one of the big heroes of the President`s plan to some, the big. axe-wielding villain to others. Charlayne Hunter-Guall and I will be talking to him tonight. Robert MacNeil is off. Charlayne?

CHARLAYNE HUNTER-GAULT: Jim. it`s almost an understatement to say that David Stockman has taken Washington by storm. Indeed, he moved into his cabinet-level post with such lightning speed that he reportedly had his entire staff in place, and budget cuts already identified long before other members in the cabinet had even begun to settle in. He has captured the center of media attention, appearing, among other places, on the cover of Newsweek magazine. The young historian is known as a workaholic -- a trait he no doubt developed in his early years as a farm boy in southwestern Michigan. Now referred to as a neophyte conservative. Mr. Stockman underwent a political metamorphosis that took him from anti-war campus radical at Michigan State to Harvard Divinity School where he returned to the conservative fold. He worked as an aide for Congressman John Anderson, and in 1975 successfully ran for Congress himself. Mr. Stockman attracted Ronald Reagan`s attention while playing stand-in for John Anderson in mock debates during the campaign. His hard-hitting blasts at candidate Reagan may have made Reagan aides wince, but you could say that, and compatible philosophies, are in the end what got him his job. And he`s with Jim in Washington to tell us about that job. Jim?

LEHRER: Mr. Stockman, welcome.

DAVID STOCKMAN: Thank you. I`m glad to be here.

LEHRER: How does it feel to be called "The Slasher." the "Big Man with a Knife`"

Mr. STOCKMAN: Well. I`ve been called worse. So I think we can live with that.

LEHRER: I see. Look, you and the President are recommending cuts in 83 federal programs. What was the basic criteria that you used in identifying those 83. and then deciding how much the cuts should be.`

Mr. STOCKMAN: Well, there are really two things. One. we knew that the growth of federal spending of recent years was unsustainable: it had been 12. 16 percent a year, and that we would have to sharply reduce that growth rate to 5 or b percent if we wanted to gel inflation down, and have a budget plan that was compatible with our tax reduction plan. Secondly, in order to achieve the spending cuts that would be required to hold spending to that rate, we established about eight criteria. One of those was that in the process of making very severe reductions throughout almost every area of the budget -- grant-in-aid. subsidies to business, aid to education, and so forth -- that we would try to preserve the social safety net -- that basic group of programs that we`ve had for about 40 years now, designed to protect the elderly, the disadvantaged, veterans, and unemployed workers. Beyond that we said we`re going to take a hard look at subsidies that go to business and other sectors of the economy, and we cut many of those: synfuel subsidies, the subsidies to the Export-Import Bank. We said that because we`re cutting taxes fairly deeply and for a sustained period of time, that direct benefits financed by government going to middle and upper income groups should be eliminated. So we`ve cut out the school lunch subsidy entirely for upper income families, and have cut back their access to guaranteed student loans and grants. We looked at other criteria in terms of revising entitlements to be sure that the benefits would be focused on the truly needy, and as a result of that process, we were able to identify some savings in food stamps, the trade adjustment assistance pro-gram, extended unemployment benefits, and so forth. Finally, we said that in certain areas there are activities that the government carries out that are perhaps desirable if we have a stable, healthy, growing economy in a good fiscal situation, but under present crisis conditions, we`re going to have to cut back. So we`ve cut back on highway construction, and mass transit funding, the subsidies to Amtrak which just are too efficient -- inefficient to be affordable at this time. NASA, and so forth. And then finally we said there are certain instances where you have beneficiaries of government activity that are very easily identifi-able and [if] they`re receiving economic benefits from these programs, they ought to pay user fees. And so we`ve asked yacht owners, airline travelers and so forth to cover the cost of the air traffic control system and the Coast Guard services. So overall. I think we had a pretty sound and pretty justifiable set of criteria, and it allowed us to make these very deep reductions -- $41 billion next year, and much larger amounts in the future -- on the basis of criteria that are discriminating, and that will allow government to focus its resources where the real public objectives and social needs in our society are.

LEHRER: But in effect, what you`re saying is you started with a figure that you wanted to cut. and then went to the budget and figured out where to find it. right?

Mr. STOCKMAN: Well, not entirely. We started with a set of criteria. We felt that the government had grown excessively, that it was doing things that it shouldn`t be doing, that it was funding activities that weren`t appropriate. So we set up a set of criteria to isolate those areas, and to reduce or eliminate them, and then, second, of course, for our eco-nomic plan as a whole we needed very large cutbacks to achieve the anti-inflation effect that I think this budget reduction will have.

LEHRER: But what I`m saying is- -- what I`m asking is that clearly the impetus for making these budget cuts was the economic problem, not necessarily a desire to trim back this program, trim that program, whatever. So you did start with a figure and then you took the budget and said "Okay, now, where are we going to get it?"

Mr. STOCKMAN: That`s right. And then on the basis of consistent and logical criteria, rather than just random slashing and cutting and hacking. And I want to emphasize that because I think we did it pretty carefully.

LEHRER: So we want to go through the specifics now Charlayne?

HUNTER-GAULT: Exactly. The specific and logical criteria. Can you tell LIS. for exam-ple, how it applies to the $1.8 billion in cuts in the food stamp program?

Mr. STOCKMAN: Yeah, that would be a good example. We said that there are certain entitlements that were designed to serve an important purpose. In the case of food stamps, it was to provide a minimum level of nutrition support for low income families. It was not designed to be a general income transfer program, hut a nutrition support program. And so on that basis we have established -- or proposed the establishment of a cap on eligibility of 130 percent of the poverty line which would be about $11,000 annual income for a family of four. And we said that although someone will say that that`s arbitrary, basically it`s a fair level to distinguish between those who really do have unmet nutrition needs that the government needs to help provide, and those who have sufficient resources or income of their own to meet their nutrition needs.

HUNTER-GAULT: All right, you say it`s arbitrary. But how do you even get to a figure of $11.000 for a family of four and decide that they can afford not to have food stamps instead of someone else?

Mr. STOCKMAN: Well, again, you have to draw the line somewhere. You can`t have all families eligible for food stamps or we`re all going to be paying taxes in order for the government to give us our food. I mean, that isn`t a logical criteria, so we said 130 percent of the poverty line. The poverty line in 1981 will be about $8200. And that seemed to be a fairly reasonable criteria because many other federal benefit programs have a cut offline in the same area -- like the free school lunches and the free breakfasts are to go to children in families below 125 percent of the poverty line. So there`s precedent for it, and that seemed to be a logical breakpoint.

HUNTER-GAULT: Well, last night on this program, Congressman Charles Range! from New York said that a lot of the working poor are using that kind of aid that makes the difference between them being working poor and on welfare. And if you take that little bit of aid away from them -- for example the food stamp aid ? -- then that will push them onto the welfare rolls. Did you factor that into your calculations?

Mr. STOCKMAN: Yes. we did. And I think that that`s just a charge. I don`t think it can be very easily documented, nor is it a very logical conclusion. Now, the question can be raised, should we do more for the working poor in our society? That is totally a separate question. I don`t believe food stamps were ever designed to provide general income transfers to the working poor. They were entirely a nutrition -- an anti-hunger -- oriented effort, really expanded in the late `60s, and we wanted to focus, or refocus. the food stamp program on that objective. Otherwise, you know, it`s getting totally out of hand in terms of its cost and the total number of people eligible -- more than 20 million at the present time.

HUNTER-GAULT: All right. Let`s focus on another area. You`re cutting out public service jobs and training programs, saving about $3.6 billion but still costing 600,000 jobs. What`s the rationale there?

Mr. STOCKMAN: Well, it will not reduce any jobs in my view. In order for us to fund that program, we`ve got to tax other sectors of the economy, or we have to borrow money, and thereby prevent private businesses from creating jobs with the same funds that are available in the credit market. We just happen to believe that private jobs are better than make-work, dead-end public service jobs. And we think that by abolishing this program, reducing government spending and borrowing in the credit market, reducing taxes, we`ll get far more private jobs generated that will easily make up the slack.

HUNTER-GAULT: How soon?

Mr. STOCKMAN: Our projection is that if this program is adopted by Congress over the next few months, that by next year you will have a very rapidly expanding economy, a situation in which a couple million new jobs would be created or opened up next year.

HUNTER-GAULT: What would happen to the 600.000 people who are taken off of the CETA jobs in the meantime`.

Mr. STOCKMAN: Well, in the first place, there aren`t 600.000 people in the CETA jobs. There are only 300,000. and many of those are being phased out under existing policy. Secondly, we propose to phase these out over the next eight or nine months. During that period. I would suspect that many of them can find jobs in the private sector.

HUNTER-GAULT: What will you be doing to stimulate the private sector to phase in. so to speak, these people? I mean, will there be special incentives to say. "look, you know, these are the people we`ve had to dump out because we`ve gotten rid of this program; can you make some special effort to take them?" I mean, will you be doing that sort of thing?

Mr. STOCKMAN: No. I think it`s a more general approach. The tax reductions on the business side, the tax reductions on the personal side designed to stimulate investment and savings, and even the formation of businesses will generate the aggregate supply of jobs we need. But I might also say that in the tax laws today, we have something called the job development credit which is especially designed to encourage small businesses to create jobs for the disadvantaged or for those who have low skills. So between the general expansion of the economy and job creation, plus some of the targeted incentives that already exist. I have every confidence that those who are on make-work, dead-end CETA jobs today can get productive opportunities in the private sector of our economy.

HUNTER-GAULT: All right, thank you. Jim?

LEHRER: Mr. Stockman, you cut -- or you`re proposing to cut many energy programs, but there`s one glaring exception, and that`s the Clinch River breeder reactor in Tennessee -- Senator Howard Baker`s home state. Why didn`t you cut that?

Mr. STOCKMAN: Well, we haven`t made any decision on that. As a matter of fact, in this first round of proposals -- the 83 -- those were reductions from the Carter budget: programs that we thought should be funded at a lower level or not at all. The Carter budget had no funds for Clinch River so it was kind of difficult on the first round to cut funds that didn`t exist. We are now in the process of evaluating what should be this administration`s policy towards the idea of developing the fast breeder reactor. And that is still in the decision process; we`re still evaluating that. And it will be a number of weeks before we have some final conclusion on that.

LEHRER: Does the fact that it`s in Tennessee and Senator Baker very, very much wants that project funded -- is that going to affect the decision in any way?

Mr. STOCKMAN: Well, obviously his wishes and the wishes of a lot of other people have been taken into account in this process, but I might point out that a number of the synfuels plants that we wanted to -- that we have proposed to cancel are also in Tennessee. There was no favoritism; there was no partiality here. We cut out two large synfuels plants, the whole Appalachian Development Program, and a number of other activities that are highly directed towards the Senator`s home state. And he wasn`t entirely happy with everything, but he was willing to go along because he understands that our national crisis of our economy now is so severe, that if we`re to get the situation solved, and get the economy moving again, everybody`s going to have to give up some of their favorite projects, and some of the federal funds that end up back home.

LEHRER: Going into this. Mr. Stockman. I`m sure you read the same stories I read that a lot of people -- a lot of the skeptics -- said. "well, we`ll really find out whether or not the Reagan folks are really serious about what you just said by what they do with tobacco subsidies." which is something that is dear to the heart of

Mr. STOCKMAN: Well. I can`t understand how tobacco subsidies -- which cost in the scale of things in the federal government almost a negligible amount -- Senator Jesse Helms of North Carolina. What is the administration planning to do about that? have suddenly been established as a criteria as to your consistency or your guts or your determination to go ahead. I think you just have to look a the proposals we`ve made already, and see that we`ve speared sacred cows that are highly desired by a number of our leading Republican Senators and House members. Senator Dole wasn`t happy about the food stamp changes. Senator Domenici. chairman of the budget committee, was not happy about the synfuels changes. Senator McClure. chairman of the energy committee, wasn`t entirely in agree-ment with all the deep cuts we proposed in the Department of Energy. Some of the proposals that we`ve made affecting the public works area -- EDA -- were not entirely, perhaps, what Senator Stafford would have recommended. Senator Percy certainly had differences in his point of view on the severe reduction I proposed in foreign aid. So to suggest that there are certain sacred cows that have been left out for political reasons. I think, is totally erroneous; it`s kind of a nit-picking effort on the part of people who are surprised that we have been as thorough and as undaunted as we have been in going after many of these items in the budget that should have been reduced or eliminated long ago. Now. on the tobacco subsidies. I will say that we`re evaluating all of the farm commodity support programs and subsidy programs at the present time because the farm bill expires this year, and we`ll have to propose new legislation. And my basic view is that we`ll try to do in those other commodity areas basically what we did with the dairy price support recommendation, and that is substantially reduce the cost to the taxpayer in the federal budget.

LEHRER: What was the reasoning behind cutting aid to mass transit?

Mr. STOCKMAN: Well, there are two reasons. One, I don`t think it`s appropriate for the federal government to cover the operating costs of local transit systems.

LEHRER: Why not?

Mr. STOCKMAN: It never made sense to me to ask my taxpayer in St. Joe. Michigan, to pay the cost of the subway in New York City. If New York City wants to have a subway, they ought to charge an adequate fare, or the local taxpayers, or the state or a regional government ought to generate tax revenues to subsidize the system if it can`t function on its own. It`s absolutely wrong in my judgment, and unjustifiable, to have that kind of transfer-ring of resources from one side of the country to another. Now, on mass transit capital investment: I`m a strong opponent of fixed-rail mass transit systems in the newer cities and newer areas of the country. I don`t think they make economic sense. I think they`re absolute white elephants, and we shouldn`t waste another dime of taxpayer dollars starting any new fixed-rail systems in the country. Take BART, for instance. The best economic studies --

LEHRER: That`s the San Francisco.

Mr. STOCKMAN: San Francisco subway system. The best economic studies on that suggest it would take 500 years to pay back or to recover the capital and operating costs of that system.

LEHRER: Even as young as you are. Stockman, you`re not going to live that long, right.

Mr. STOCKMAN: That`s right. That`s right. So there was a clear policy criterion. Now, in the case of older mass transit systems like the Boston system, or the New York system, built many years ago we could plan to continue aid so that they can replace buses or transit cars and other facilities to keep those systems in repair. But to start new systems in this day and age with the sprawl that we have in our urban areas, the lack of sufficient transit density, doesn`t make sense.

LEHRER: One final question about that. As you know, here again, the criticism is: on one hand the Reagan administration has deregulated the price of gasoline which is going to cause people to try to find alternatives to driving their car because the price is going to go up. but on the other hand, through budget cuts, is in some way. like it or not, going to reduce the availability of mass transit. Do you find that an inconsistency?

Mr. STOCKMAN: No. In fact. I find it entirely consistent. One of the reasons that we`re paying such huge subsidies -- $180 million to the New York City subway system alone from federal dollars -- is that the farebox prices have been kept artificially low to be competitive with alternative modes of travel. Now that it`s becoming more expensive to travel by car -- let`s say on a passenger-mile basis -- it will be possible for many of these mass transit systems to charge a fare that more nearly covers their costs.

LEHRER: They`ll both be expensive, in other words.

Mr. STOCKMAN: That`s right. There`s no way to have a free lunch in the world. I think we know that by now.

LEHRER: Charlayne7

HUNTER-GAULT: Mr. Stockman, the big thing from the Democrats right now is that you`re going too fast with all this. You need to slow up because these changes are so massive that they need time to study them and absorb them and so on. What is the rush?

Mr. STOCKMAN: Well, the rush is twofold. I believe we have a very serious crisis in our economy. When we have eight million people unemployed, and we high double-digit interest rates, when we have small businesses on the verge of bankruptcy, when we have thrift institutions, and life insurance companies, in many cases nearing insolvency, when we have the kind of ratcheting up and down that we had last year of interest rates -- one quarter of economic expansion, the next quarter of collapse -- that tells me that our economy is in a very dicey, very volatile, very dangerous condition. And when you face circumstances that urgent. I think you have to act with some urgency. Now, I`m not proposing that all of these items that we`ve suggested -- the 83 spending cuts -- be rushed pellmell into statute by Congress, but we would like some expedited treatment. We would hope that over the next couple of months the Congress will work hard: hold daily hearings: move these items through the subcommittee, full committee, and the reconciliation process ultimately so that action can be taken sometime within the next few months.

HUNTER-GAULT: Excuse me.

Mr. STOCKMAN: Oh. I was only going to say that I find the Democratic criticisms quite ironic and striking because I remember three weeks ago. we were sort of told by the Speaker that we were taking too much time, and that the House was ready to act, and where was our proposal? And now we`ve sent our proposal up, and he said we`re rushing with undue haste. But I think we all get caught in those contradictions, and I expect that we can work with the House Democrats as well as the Senate Republicans on a orderly procedure that will still get us the kind of early action that the country and the economy needs.

HUNTER-GAULT: Well, the leaders -- the Democratic leaders -- in both the House and the Senate have said that they`re planning a strategy of selective opposition to specific proposals. What will that do to your plan to have everything done in sort of a nice, neat, and tidy package all at one time?

Mr. STOCKMAN: Well, that will cause difficulty, obviously, but on the other hand, we never expected that these proposals would be agreed to or acquiesced to 100 percent on the part of all of the factions and the forces within our executive-legislative process. So we will have some contests: we will have some votes; we will have some political struggles to determine whether our recommendations are better than theirs, or whether they can come up with superior alternatives. But again. I would go back to the President`s concluding statement Wednesday night. And he said this may not be perfect, there may be better alternatives; but if you have them, let`s hear them because the country needs action.

HUNTER-GAULT: Well, how do you deal with the congressmen who say that they support your basic strategy but when it comes down to their water project or their dam or their railroad line or hospital, don`t touch those. I mean, you mentioned Senator Dole, and I think your original proposal for food stamps was $2.6 billion, and you came down to SI.8. I mean, are you going to be making those kinds of exceptions and compromises?

Mr. STOCKMAN: Well, of course As a former member of Congress. I understand that compromise and accommodation is what makes the democratic process work. No one ever gets their way completely. But we would hope that the basic structure and the basic integrity of what we`ve proposed is preserved. I do believe we need about $40 billion worth of cuts from next year`s budget, but I am not wedded to every one of the 83 items or the additional items we will propose in a couple of weeks. If someone can come up with better alternatives that seem fairer, or seem more justifiable, we`ll be willing to listen with open ears.

HUNTER-GAULT: Briefly, if you get the budget cuts and you don`t get the tax cuts ? -- which is where there seemed to be the most opposition, to the tax cuts -- what will happen if you don`t get them simultaneously?

Mr. STOCKMAN: Well. I think then the improvement that we expect in the economy -- the reduction in the inflation rate, and the recovery of very healthy growth, job creation, higher living standards for the American people -- - will not be entirely realized. And the Congress has to understand that. If they reject a major part, or even the whole plan, there will be a price to pay, and the price will not be so much a political price as it will be a very personal price for millions of American families and workers.

HUNTER-GAULT: All right Jim.

LEHRER: So in other words, when you and the President say. "Hey. members of Congress, if you`ve got any better ideas than this, let`s hear them." you really don`t mean that, do you. from a standpoint of the overall thing. I mean, you want -- you think you`ve got the way to do it. You don`t want any big overall plan coming back from Congress.

Mr. STOCKMAN: Well. I don`t want a totally different plan that`s based on a different set of ideas or policies. In other words, I believe the sharp reduction in spending growth, and the movement towards a balanced budget is the only way to get inflation coming down fast. If Congress comes along, or some faction of Congress, and says we don`t want to cut the budget because that`s too painful politically, but we`ll vote you wage and price controls. I would consider that a totally unacceptable alternative. On the other hand, if they said we have a proposal to save $3 billion and thereby you would not have to cut food stamps as much, or you would not have to cut water projects as much -- or some other item in our list -- that`s the kind of thing we could deal with because it`s based on the same direction.

LEHRER: All economic programs, as you know. Mr. Stockman, are based on some-body`s theories. During these last several weeks when you`ve been working 19. 20 hours a day deciding to cut this or to cut that or to do this or to do that. have you had any doubts at all that you`re on the right track?

Mr. STOCKMAN: No. because it was not a theory that we concocted in the last three weeks. I think the kind of policies that we`ve recommended -- lowering the tax rates on people to restore their incentives, cutting business taxes in order to increase investment, cutting government spending in order to eliminate deficits and allow monetary policy that is not inflationary -- these are well understood, well supported basic policy ideas. I`ve believed in them a long time as has President Reagan and most other members of the cabinet and the Republican leadership on the Hill. What we did in the last three weeks was simply to translate those viewpoints that we think we received a mandate from the Ameri-can electorate to implement into specific detailed proposals such as eliminating some of the programs.

LEHRER: Mr. Stockman, we have to leave it there. Thank you very much for being with us. Even those who don`t like your program. I would think, would wish you well to finally get a good weekend`s rest.

Mr. STOCKMAN: Thank you

LEHRER: You`ve been working very hard. Good night. Charlayne.

HUNTER-GAULT: Good night. Jim

LEHRER: And you have a nice weekend as well. We`ll see you on Monday. I`m Jim Lehrer. Thank you and good night.