The Secret to Budget Cuts

It might have been sheer coincidence that President Reagan s first official act after his close brush with death last week was signing a bill for a $147 million reduction in dairy price supports But don't bet on it. Later in the week the Senate approved, by a vote of 88 to 10, $36.9 billion in budget reductions. Alan Greenspan, former chief economist to President Ford and a member of TIME'S Board of Economists, explains the surprising ease with which the budget cuts are passing in Congress:

Western democracies have for years been attempting to contain budgets dominated by social welfare outlays. Nonetheless, spending generally continues to rise at a pace faster than the growth in revenues. Governments politically pressed by inflation, are struggling to overcome special interest pressures with little visible success. The travail of Britain's Margaret Thatcher is the most publicized recent example. But in the past few weeks, President Reagan may have, partly by calculation and partly by happenstance, found the key to defusing special interest pressures and reining in spending The presumption that spending could be cut by close to $40 billion was at first either ridiculed or greeted with deep skepticism by those anointed with "conventional wisdom " . there is now reasonable probability that most of the President s proposals will become law. What has changed?

There has long been a suspicion that budget growth could be reduced if somehow all programs were pared concurrently. But there was no way to reverse the historic logrolling process by which differing lobbyists joined to support each other's programs. To most legislators, voting down an appropriation that benefited a special interest was perceived as a large loss; the benefits to individual taxpayers,typically a small gain. Not surprisingly, past endeavors to cut special interest appropriations usually lost by large margins The so-called reconciliation process, however, allows the budget committees, with the agreement of a majority of both houses, to commit individual appropriation committees to fixed ceilings in a spending package. This method has existed since the Budget Act of 1974, but it remained essentially dormant until recently. Under this procedure, the benefits to the average taxpayer of huge budget cuts are clear, and the cost to any special interest is diluted. A vote against cash benefits for one's constituents can far more easily be defended as a regrettable part of a much broader bill Moreover, an omnibus bill of cuts tends to force special interest groups to compete with each other. Lobbyists clearly function best when they deal with one issue at a time. In fact some White House aides only half facetiously forecast that following the President's proposals on Feb. 18 for sharp spending cuts, special interest lobbyists flying into Washington's National Airport would clog up at the gates and never make it into town.

Had President Reagan submitted cuts of $10 billion to $15 billion from the 1982 budget history suggests that he would have achieved reductions of $3 billion or less. Having requested nearly $50 billion, he is likely to achieve upwards of $40 billion. But if he had proposed $60 billion some major part of the program would probably have failed, and the whole package of cuts would then have surely unraveled. In tIn this sense, President Reagan and Budget Director David Stockman have apparently come upon the critical mass for budget cuts. Just as in nuclear physics, where exactly the right amount of uranium is needed to trigger a chain reaction, the cuts must be big enough to create a large political benefit yet not so large as to risk the loss of a critical part of the package in Congress.

It is too early to conclude unqualifiedly that President Reagan has discovered the key to control the runaway budget. But if he succeeds, it would be an important signal to our allies that budget-induced inflation can be tamed.

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