'Don't Get Your Hopes Up'

During his run for the presidency, Jimmy Carter pledged to balance the federal budget by the end of his first term and to increase spending for social programs. His changes in the fiscal 1978 budget, which are going to Congress this week, reflect that precarious balancing act. There are some cuts--but not too many. There is some additional spending--but not too much. The revised budget will not make anybody very happy, but then it will not make anybody too unhappy either. In short, it is quintessential Carter.

Carter has increased former President Ford's budget from $440 billion to $459 billion, with an estimated $57.4 billion deficit, compared with Ford's $47 billion. The biggest boost is $8 billion in spending for economic stimulus. By restoring cuts that Ford had made in such social programs as food stamps, child nutrition, Medicare and Medicaid, Carter added $4.5 billion to the budget. Ford had proposed a $11 billion increase in Defense Department appropriations to bring the Pentagon budget to $124.3 billion; Carter has requested about $3 billion less.

The President's men were too pressed for time to have reshaped the budget more dramatically. "All we could do was take a broad swipe at the document," said Bert Lance, director of the Office of Management and Budget.

Carter was adamant about keeping spending down. At his Cabinet meeting last week, he told department heads to cut rather than add. "There is only so much deficit we can accommodate," he said. "So I don't want you to get your hopes up." He repeated his promise to balance the budget by fiscal 1981. "I did not make that commitment lightly."

Health, Education and Welfare Secretary Joseph Califano discovered as much when he took a shopping list of items he wanted to the President. Califano left, remarked a White House adviser, with an "empty basket." The Environmental Protection Agency put together a 100-page appeal for more money and cheekily sprinkled it with quotes from Carter campaign speeches calling for more spending on the environment. The President was not moved. Patricia Harris, Secretary of Housing and Urban Development, asked for more funds to expand a program of subsidized housing for the poor. She too was turned down. Says top White House Aide Hamilton Jordan: "Jimmy's just as fiscally conservative as Bert Lance--or worse."

Carter's projected $57.4 billion deficit is an improvement over the $68 billion in red ink anticipated for fiscal 1977, which ends on Sept. 30. The current deficit has been swollen, however, by the $11.4 billion in tax rebates that is expected to be pumped into the economy as part of the stimulus package. The business community, some economists and Federal Reserve Chairman Arthur Burns question whether such a stimulus is still needed now that the economy seems to be recovering satisfactorily. They warn that its impact may be inflationary. But Congress moved briskly ahead with the plan last week, changing some of the details in the process.

Although Carter had asked for a $50 rebate for every taxpayer and dependent, the House Ways and Means Committee voted to decrease the rebates for individuals earning $25,000 or more a year and eliminate them altogether at $30,000 a year. The committee also rejected Carter's business tax breaks, which gave an employer the option of taking an extra 2% tax credit on investment in equipment or a 4% credit on the Social Security taxes he pays. The committee reasoned that businesses would not be encouraged to hire enough new people. So it approved a tax credit equal to 40% of the first $4,200 in wages paid to new employees above the average number of workers on the payroll in 1976. A $40,000 ceiling was placed on the amount of tax credits any single firm could claim.

The President did not have the time to apply his controversial zero-budgeting procedure in drawing up the fiscal 1978 budget. This will require every federal department to justify all its programs, not just new expenditures, every year. Zero budgeting will be employed in the fiscal 1979 budget, Carter's first complete fiscal blueprint for the nation.

Apart from doubts that this kind of budgeting is as effective as Carter makes it out to be, there is widespread skepticism over whether the President can balance the budget and add significantly to social spending at the same time. A report issued last week by the Congressional Budget Office concludes that Carter's goal is attainable only if the economy grows by more than 5% every year. Even if growth is that robust, the office figures that the maximum sum available for additional social spending by 1980 will be $50 billion--not nearly enough to cover the costs of such ambitious programs as national health insurance. There is no easy escape from Carter's dilemma. Before his first term ends, he is doubtless going to have to make a hard, politically hazardous choice between cutting and spending.

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