THE FEDERAL BUDGET

Can It Be Simplified?

TO the average citizen, the federal budget is as unintelligible as a careless housewife's checkbook. It also baffles experts. The Hoover Commission, after a long look, called it "an inadequate document, poorly organized and improperly designed." Yet even with recent improvements, the method of computing the budget makes it hard to talk about Government finances and make sense. For example, the Administration expects a budget deficit of $3.8 billion in the current fiscal year; yet also hopes its cash income will fall short of outgo by only $500 million.

This is possible only because the U.S. actually has not one budget but two. The official budget is the "administrative budget,'' which records all planned income and outgo by the Government for the year. But there is another budget, the "consolidated cash budget." It shows the actual flow of cash in and out of the U.S. Treasury. This cash budget differs from the administrative budget in two ways: 1) it takes no account of the money that the Government transfers from one pocket to another (e.g., the $1 billion in interest paid annually on bonds held by its own agencies), and 2) it counts as income the excess of receipts over outlays for Government obligations such as social security. Because of these differences, the red ink is less in the cash budget than in the administrative budget--which is why politicos tend to slur over their deficits in the administrative budget and talk instead about the cash budget.

Many economists think it might be more realistic to scrap the administrative budget and use only the consolidated cash budget. They argue that the administrative budget has been balanced in only three of the last 23 years, and the Administration now fears that it might not be balanced again for a long time. Furthermore, economists maintain that balancing the cash budget is the best way to regulate the Government's finances.

This idea, put forward in the '30s by the New Deal's Brain-Truster David Cushman Coyle, has won support from conservative authorities such as the businessmen's Committee for Economic Development. Recently, Economist Beardsley Ruml, a Fair Dealer, added a new twist. The administrative budget, he argues, is made meaningless by one glaring fault: it overstates the Government's actual operating expenses by including each year an estimated $6 billion worth of items that are actually capital investments of lasting value which should be charged off over a period of years instead of being paid for all at once. They should be taken out of the budget.

Under such a plan, transactions from one Government pocket to another would be washed out, and all Government revenues would be treated as income. Such capital expenditures as Federal National Mortgage Association mortgages, small business and rural electrification loans, and Government stockpiling would be taken out of the budget. Ruml would also set up separate corporations, float bonds to finance such capital expenditures as $4 billion worth of federal investments that could produce income to pay for themselves.

To many conservatives, such proposals seem to be schemes to replace embarrassing red ink with comforting black by rejiggering the Government's books. But there is much to be said for the Government's operating on a cash budget. It is the cash budget that determines how much the Government must borrow, and hence the cash budget is the best measure of the deflationary or inflationary effects of Government spending.

The main trouble with the Ruml plan is that it goes too far in estimating what Government investments are self-liquidating and could be handled outside the budget. A cash budget is also opposed by economy-minded lawmakers, e.g., Senator Harry Byrd, on the ground that the "fiscal illusion" of balance would open the door to greater Government spending. Actually. Congress would have the same control over spending that it now has.

Perhaps the most serious objection to relying only on the cash budget is the way it counts social security money as income. At present, receipts exceed outlay. But as life expectancy in the U.S. increases, payments may exceed income. A failure to recognize this seems to ignore the Government's eventual obligation to pay. But the Government already uses this money for current expenses, putting Government bonds for the amount into the social security trust accounts. Since these bonds have to be paid off out of income, many economists argue that the Government is actually running social security on a cash basis anyway.

Because of the confusion in the Government's budget methods, politicos are now able to talk about whichever budget suits their purpose, with the plain citizen little the wiser. With a single cash budget, everybody would be talking about the same thing.

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