May 3, 1977
Page 13319
Mr. MUSKIE. I am happy to yield whatever time the Senator would like.
Mr. HARRY F. BYRD, JR. I thank the Senator.
Mr. President, Senate Concurrent Resolution No. 19 is, in the judgment of the Senator from Virginia, totally unacceptable.
I shall outline briefly a number of reasons that I feel this resolution, this spending program, is cause for alarm and should be cause for concern on the part of the American people.
First, the deficit recommended by the Budget Committee for fiscal year 1978 is $3 billion more than the committee envisions for fiscal year 1977.
Two, while revenues taken from the American people will be increased by $47 billion during 1978, the American people will get no benefit from those additional revenues in the way of any reduction in their taxes.
Not only will the entire $47 billion in additional revenues be used for increased spending, but the increased spending will go beyond the $47 billion and will total $50 billion.
A $50 billion increase in spending for fiscal year 1978 is what the budget resolution calls for. Mr. President, that is an increase of 12.5 percent, in that 1 year, over fiscal year 1977.
A little while ago the distinguished Senator from Oklahoma mentioned the shortfall in spending, which is to say that the Government has not been able to spend all the money that already has been appropriated to it. But despite that, this budget resolution calls for an additional spending in fiscal 1978 of $50 billion. That is an increase of 12.5 percent.
Mr. President, when the Senate Concurrent Resolution No. 19 is compared with the proposal of President Carter for fiscal 1978, we find that the Budget Committee recommends a $5 billion deficit greater than the deficit recommended by the President.
Mr. MUSKIE. Will the Senator yield?
Mr. HARRY F. BYRD, JR. The President's deficit is placed at $58 billion. The Budget Committee's proposal is for a $63 billion deficit.
Yes, I yield to the Senator.
Mr. MUSKIE. I caution the Senator that with respect to that conclusion, the deficit is the product, of course, of spending and revenue estimates. We consider the President's economic assumptions over optimistic, given the present economic statistics. As a result, we are more cautious in predicting growth in revenues in 1978.
Our more cautious prediction on revenue growth contributes at least half of the difference between the President's deficit numbers and ours.
In addition, we think we have been more realistic in projecting the cost of interest on the national debt, given present conditions, and that contributes some more of the gap.
So the difference in the deficit numbers does not reflect that much of a difference in spending.
As a matter of fact, we are $2.9 billion lower than the President's 1978 outlay numbers. So that on spending, we are below the President.
Mr. HARRY F. BYRD, JR. I thank the Senator for developing those points.
When I mentioned the President's deficit, I did not mention his deficit with approval, I might say.
Mr. MUSKIE. I understand.
I do not quarrel with the Senator's raising the point. But I think it is important to understand the difference in assumptions.
We have had some arguments with the President and his budget advisers on those differences which permit him to say to the country that he has a lower deficit when the actual fact is, when we look at all the figures, we are below him in spending and the differences are really related to economic assumptions.
I know the Senator will appreciate having that information.
Mr. HARRY F. BYRD, JR. I do.
Mr. MUSKIE. I understand his disapproval of the budget resolution. I do not quarrel with his right to express that disapproval.
Mr. HARRY F. BYRD, JR. I do appreciate having that information from the Senator from Maine, because it is very desirable to have the assumptions made known to the Senate. The Senator from Virginia happens to feel that the President of the United States and his administration have advocated too much spending and too high a deficit, just as I feel that the Budget Committee itself has advocated too much spending and too high a deficit.
Mr. MUSKIE. The Senator has always made that difference of opinion very clear. I am not trying to obfuscate his position at all. I think he has made it very clear. I appreciate his candor and his frankness, which reflect his own deeply held convictions.
Mr. HARRY F. BYRD, JR. I thank theSenator from Maine.
Mr. BELLMON. Will the Senator from Virginia yield?
Mr. HARRY F. BYRD, JR. I am glad to yield to the Senator from Oklahoma.
Mr. BELLMON. The Senator from Maine very properly called attention tc the shortfall spending which the administration has announced. I should like for the record, to show where these shortfalls are occurring.
I also point out that these were early in the fiscal year and there is some indication that those shortfalls may now be made up.
In military spending, there is a shortfall of $1.2 billion. I do not think the Senator from Virginia would expect us to reduce the military category by that amount.
Also, in NASA spending, there is a slight shortfall. Another shortfall came in the spending for function 500, which is largely an entitlement program, where some of that will be changed if the economic situation changes.
The biggest shortfall comes in function 600, where there is a very definite reduction in spending due to the increase in the economy, the pickup in jobs and the reduction in the demand for certain types of welfare programs. So I think that, rather than expecting the present resolution to reflect those, it is better to wait and see what happens in the economy so we can know better next year.
I also point out that most of these are entitlement programs which the Budget Committee cannot deal with under the present law.
Mr. HARRY F. BYRD, JR. I thank the Senator from Oklahoma.
As far as the Senator from Virginia is concerned, he has no critical concern about the shortfall. I would just as soon there would be more shortfall. The more shortfall we have, the better I like it.
The only reason I brought up the shortfall was to say that, even though we are not spending all the money Congress has already appropriated, this new budget proposal proposes to increase spending by another $50 billion, making a total of $459 billion, or, we might say, $460 billion.
Mr. MUSKIE. Will the Senator yield?
Mr. HARRY F. BYRD, JR. Yes.
Mr. MUSKIE. I think that, in response to that, I ought to emphasize the point that the budget resolution sets spending targets. Our responsibility is to try to accommodate what would be required to meet the Government's obligations if the policies of the administration and the Congress are implemented. That is not to say that we recommend spending every nickel. If we were to take that stance, our change in the 1977 budget would not reflect the reduction in outlays resulting from reestimates. We are not urging that the savings be spent; indeed, we reduced outlays in order to reflect the reestimates.
I wish to say this to the Senator on the point that Senator BELLMON has made: It is a temptation to assume that shortfalls in 1978 will occur comparable to those for which we have just made adjustments in the 1977 budget; there is nothing in the information available to us to suggest that that will happen. I personally hope it will. I hope that we shall get better information on why the shortfalls occur so that, when we come in with targets like this, we can be a little more precise with respect to them.
(Mr. MATSUNAGA assumed the chair.)
Mr. MUSKIE. But the experience of fiscal 1976 and the transition quarter and now of fiscal 1977 suggest that comparable shortfalls may, indeed, occur. If that happens, and if that is our experience between now and September, I should expect that the second resolution — which will be the hard one, with binding ceilings — may well reflect some additional information on shortfalls. I am certain the Senator from Virginia joins me in that hope.
Mr. HARRY F. BYRD, JR. I certainly do join the Senator from Maine in that hope. The Senator from Maine has been around this town for so long that I think he knows that official Washington, sooner or later, will find the means to spend whatever amount of money is appropriated. So I am not at all concerned about the shortfalls. I wish that they would continue and I wish that the money would remain in the Treasury, because I think the Government is spending far too much money.
With the economy improving as those who have brought in this resolution say that it is improving, then it seems to me that we should have less spending and we should have less deficits than are envisioned by this resolution.
As a matter of fact, when the Budget Committee brings in a recommendation for a higher deficit in fiscal 1978 even than we have in fiscal 1977, what it is saying, in effect, is that in the second year of the recovery, we need more stimulus than in the first year.
Mr. MUSKIE. Will the Senator yield on that point?
Mr. HARRY F. BYRD, JR. Yes.
Mr. MUSKIE. The Senator has just stated something that I have repeated and repeated to the administration as being the consequence of its change in economic policy. We challenged Budget Director Bert Lance on the very point the Senator has just made. I threw those two figures at him.
As a matter of fact, I think it was the distinguished Senator from New Mexico (Mr. DOMENICI) who made that very point to Mr. Lance as being reflective of our concern.
We made the argument to the administration that what we need is stimulus now and that the scenario in the future ought to be a decline, not an increase.
Mr. HARRY F. BYRD, JR. May I say to the Senator, the budget resolution does not call for that.
Mr. MUSKIE. But I say to the Senator from Virginia, the change in circumstances is a product of an administration decision, not ours. We did not propose the elimination of the rebate. I know the Senator approved the elimination of the rebate, but we did not. If the Senator will examine the third concurrent resolution in comparison to the first budget resolution for fiscal 1978 as we have proposed it, there was a decline in deficit from 1977 to 1978. Now, the programmatic needs of the budget are not something that can be arbitrarily adjusted, except to the extent that shortfalls make it possible. I expect there will be shortfalls. The gap the Senator is talking about may be reduced. That is the only argument Mr. Lance had.
But our whole argument to him was the very one the Senator is making, that what we ought to have is stimulus now, not down the road in 1978.
Mr. HARRY F. BYRD, JR. The budget proposal has it in both places, but it has greater stimulus in 1977 than in 1978, because of the substantial increase in spending which this resolution calls for.
I am now speaking of the spending. I do not think anyone will dispute the fact that the spending, under the budget proposal, under the Senate concurrent resolution which we are now considering, will be increased by $50 billion during fiscal 1978. The deficit will be $63 billion, which is greater than the deficit projected for 1977.
Mr. MUSKIE. I say this to the Senator: With respect to spending, this resolution is lower than the figure of the administration. It is lower than that of current policy, it is lower than that of the authorizing committees, and it is lower than that of the Appropriations Committee. This is the lowest spending number for fiscal 1978 that is pending in the administration or in Congress.
Mr. HARRY F. BYRD, JR. That is no recommendation, because the administration spends and Congress is a great spender.
Mr. MUSKIE. Let me make my second point. I have made the point over and over in my opening statement that this deficit, as was last year's deficit, as was the 1976 deficit, is almost totally the product of a weak economy and unemployment.
Mr. HARRY F. BYRD, JR. There is a difference of viewpoint.
Mr. MUSKIE. When 7 million Americans are out of work, they are not paying income taxes. That means that the revenue side of the deficit is the product of their noncontribution to the revenues of this country.
Second, unemployment compensation benefits amount to about $13 billion. That kind of spending is recession related, and until the recession is eliminated — in other words, until we have a strong economy — that is going to be there. Unless Congress is prepared to repeal the unemployment compensation program and throw unemployed people out on the street, that spending is unavoidable.
I finally made the point that three-quarters of the spending, as reflected here, is mandated by law — social security, unemployment compensation, similar payments. They are mandated by law.
The Budget Committee has no authority to reduce those payments. Congress can change the law, but we cannot. When we have a recession of this kind, programs such as unemployment compensation and food stamps generate more spending. That is why the Budget Committee recommended that we have the stimulus in 1977, so that we can stimulate the recovery, move toward a reduction in these kinds of spending.
However, when the stimulus is reduced and the recovery slows, that kind of spending is not going to be reduced. That is why we get the kind of topsy-turvy result that bothers this Senator as well as the Senator from Virginia.
Mr. HARRY F. BYRD, JR. This so-called stimulus has been going on for a long time now. The spending stimulus has been going on for a long time. The deficit stimulus has been going on for a long time.
To go back to 1974, there was an increase in spending of $22.5 billion. In 1975, because of the assertion that we needed to stimulate the economy, there was an increase of $57 billion in spending. There was a deficit of $45 billion that year. Then we come to 1976. There was another increase in spending of $40 billion, with a deficit of $66.5 billion.
We have had stimulus all along, for years, and the more we go into this deficit spending, the more difficult it is to get ourselves out of the problems which for the most part, in my judgment, hive been created by reckless and irresponsible spending on the part of Congress and the administration — and I use the plural, not the singular, when I speak ofadministrations. That has been true of all administrations in recent years.
Mr. BELLMON. Mr. President, will the Senator yield?
Mr. HARRY F. BYRD, JR. I yield.
Mr. BELLMON. I say to the Senator from Virginia that the Budget Committee is fully aware of the Senator's concern, and we share that concern. It was on the motion of our chairman that after we had prepared the original budget, we went back over it and cut almost $2 billion out of the various functions in order to hold spending down.
The problem here is not the controllable items. The problem comes from these items which, under our present law are entitlement programs. They simply continue to rise, and the Budget Committee does not have the authority to cut them back.
Mr. MUSKIE. The Senator refers to the $50 billion rise in outlays between 1977 and 1978. Let me identify the source of those.
The two biggest items are growth in defense spending and growth in social security payments.
The growth in social security is attributable to cost-of-living increases for social security beneficiaries and growth in the numbers of beneficiaries — the demographics.
The other items of growth reflected in the $50 billion spending growth are energy program; public service jobs and youth employment, which are related to the unemployment problem; medicare and medicaid; and interest on the public debt. Those are the major items.
If the Senator can suggest ways in which those can be eliminated, then he would have the answer to the $50 billion spending growth.
Also, we have an inflation rate of percent a year; and on a $400 billion budget, that is $24 billion. Much of that inflation is for Government programs indexed to inflation by law — retirement, social security. Every department including Defense, asks for an allowance for inflation in order to offset a reduction in their purchasing power.
There may be a way of having adequate defense, for example, and force them to eat inflation and force them to eat their requirements for new weapons, for pay increases. The pay increases in the Federal Government amount to several billion dollars in the next year.
It may be that what Congress should begin considering is forcing people to live on the dollars they now receive, without adjustment for inflation and without adjustment for the growing numbers of people on social security, and so on. But Congress has not made that decision. The Budget Committees cannot make that decision.
With respect to the three-fourths of the Federal budget that is reflected by those kinds of commitments, we have to give Congress our honest estimate of the consequences of the present law with respect to these payments.
If Congress does not like the present law — if, after looking at the results, Congress wishes no $50 billion increase in spending — then Congress has the prerogative of changing it, but the Budget Committee cannot.
If we were to come in here and say to the Senator that we do not need the $50 billion and reported an outlay number $50 billion less as a result, I think we would be reporting a budget that would be so unrealistic that nobody would pay attention to it. It might be a pious wish, but I cannot imagine that the laws would be changed to make that kind of budget projection possible.
Mr. HARRY F. BYRD, JR. The fact is that the budget resolution projects a deficit for 1978 greater than the deficit for 1977. The President is committed to a balanced budget in 1981.
Mr. MUSKIE. That is right.
Mr. HARRY F. BYRD, JR. How is the Government, how is Congress, how is the President, how is the country going to get to a balanced budget, when we find that in 1978 we will have the largest deficit in the history of the Government, with the exception of 1976?
Mr. MUSKIE. May I say to the Senator in the first place we have not yet had a deficit in any fiscal year covered by the budget process that has been as large as that projected in the budget resolution, not once. The 1976 budget deficit, the actual deficit, was below the deficit projected in the congressional budget.
Mr. HARRY F. BYRD, JR. The 1976 deficit
Mr. MUSKIE. Actual deficit.
Mr. HARRY F. BYRD, JR. The 1976 deficit was $66.5 billion.
Mr. MUSKIE. And the budget resolution for that year projected a deficit of $74 billion.
Mr. HARRY F. BYRD, JR. I do not know about the projection.
Mr. MUSKIE. What I am saying to theSenator is the Senator is arguing on this floor as though we were coming here and urging a deficit of x billions of dollars. In the first place, the deficit program is the arithmetic result of the outlay and revenue numbers.
We have talked about the pressures on the outlay numbers over which we have no control and which the Senator would like to ignore and which I too would like to ignore. But the fact is the law says that people who have retired on social security are entitled to certain payments, and I see no motion in this body or in Congress to reduce those payments whatsoever.
The law says the social security payments shall rise in response to a rise in the cost of living. I do not know of anybody who has proposed to eliminate that provision of the law.
Mr. HARRY F. BYRD, JR. The social security payments do not come from the general revenues of the Government. The social security payments come from the employee and the employer.
Mr. MUSKIE. Ah, now the Senator and I are talking the same language. But when that contributes to the deficit the Senator deplores that as though what he has just said has no effect on the budget. Of course, it comes from them and they are entitled to it, and the law says they are entitled to it, but the result is to increase, to contribute substantially to, that $50 billion increase in outlays that the Senator deplores.
Mr. HARRY F. BYRD, JR. The social security pays its own way. It does not come from the general revenues, as the Senator so well knows.
Mr. MUSKIE. May I suggest to the Senator then that he sit down and do the computation, and we would be glad to help him, in order to eliminate that part of the deficit.
But the fact is we have had the unified budget for all these years, and the Senator makes comparisons between 1978 and1977. Both of those are unified budgets. Both of those include the social security program. Both of those reflect increases in the cost of living.
But he complains about the $50 billion rise in spending between those 2 years, and that rise includes $8 billion attributable to increases in the payments relative to social security, $8 billion of the $50 billion.
Then when you take medicare in addition that is $3 billion more.
I do not object if the Senator is complaining about any part of this as long as he understands what some of the mandated elements of this budget are. I mean with respect to the discretionary parts of the budget I would have no objection to the Senator's focusing on those and criticizing me or the Budget Committee. I have no objection to that. But you cannot ignore that which is a fact of budget life. Nobody, but nobody, proposes to reduce social security costs by reducing benefits or by increasing taxes at this point.
Mr. HARRY F. BYRD, JR. I want to say again that the social security fund pays its own way. The fund is paid in by the employee and the employer. It pays its own way.
I am complaining about the $63 billion deficit which is greater than the deficit for 1977. I think it is a great mistake to have a greater deficit in 1978, fiscal 1978, than is projected for fiscal 1977.
Now, to go back to some figures, in 1970 the total outlays were increased over the previous year by $12 billion; this was an increase of 6.5 percent. In 1971 they were increased by $15 billion,an increase of 7.8 percent.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. HARRY F. BYRD, JR. May I get these figures into the record?
Mr. MUSKIE. I want to say on social security that it does not pay its way.
Mr. HARRY F. BYRD, JR. Let me get these figures into the record. In 1972 the increase in outlays was $20 billion, being an increase of 9.4 percent; in 1973 the increase in spending was $16 billion or a percentage increase of 6.9 percent; in 1974 the increase was $22.5 billion, a percentage increase of 9.1; in 1975 the increase in spending was $57 billion, representing a 21 percent increase in spending; in 1976 the increase was $40 billion, with a 12.2 percent increase; in 1977, $43 billion increase representing an 11.7 percent increase; and in 1978 it will be $50 billion, with a 12.2 percent increase. The deficit, as mentioned, will be $63 billion which will be the highest except for fiscal1976 of $66.5 billion.
Mr. MUSKIE. Mr. President, Will the Senator yield further?
Mr. HARRY F. BYRD, JR. Yes.
Mr. MUSKIE. The Senator made the point that social security pays its own way. It certainly is so designed, but the effect of the recession on the social security system is that in fiscal 1978 we estimate the receipts will be $88.1 billion, outlays of $92 billion. That is a differenceof $3.9 billion which the social security system is not paying. That, incidentally, is slightly more than the amount by which the deficit in 1978 rises above the deficit in 1977, a very interesting coincidence.
The point is that even with respect to social security there are recession-oriented costs, the costs of the recession that make that a deficit operation. So that if you wanted to reduce that social security deficit you would have to do something about benefits, about cost-of-living increases, and I know there are a number of Senators who would like to increase social security benefits this year. The Budget Committee received recommendations to that effect, and we have received letters to that effect from other Senators. But the social security system, in a recession, is affected by the same problems that affect general Government revenues and general Government programs.
Mr. HARRY F. BYRD, JR. The big increase in the deficit, that is the bulk of the deficit, of course, comes from other departments of Government not from the social security system.
Mr. MUSKIE. I have gone over those for the Senator. Defense is the biggest one.
Mr. HARRY F. BYRD, JR. It comes from all departments of Government.
Mr. MUSKIE. The national defense share of the $50 billion increase is $13 billion; $8 billion is for social security. There is $21 billion.
Then there is energy. Everybody says we have got to do something about energy, we have got to provide more research and development. So energy is a component.
Then we have public service jobs and youth employment. People say get the unemployed off welfare and put them to work, so we have to provide jobs to put them to work. That is part of the $50 billion.
Medicare and medicaid, interest on the public debt; those are some of the components of the $50 billion increase in spending.
Mr. HARRY F. BYRD, JR. I might point out also there are five other non-defense functions which will cost $17 billion more next year than this year.
Mr. BELLMON. Mr. President, will the Senator from Virginia yield for a point?
Mr. HARRY F. BYRD, JR. Yes.
Mr BELLMON. I am very much in accord with the Senator's objective of getting a balanced budget. I want to say to the Senator from Virginia that the Budget Committee is as much distressed about this apparent move in the wrong direction as is the distinguished Senator from Virginia. I have had some figures prepared as to what we would have to do to get to a balanced budget now.
First, I shall discuss the possibility of just cutting 10 percent out of the various controllable programs, not the uncontrollables. We cannot do anything about interest on the Federal debt, social security, railroad retirement, Federal retirement programs, and unemployment compensation. If those are going to be changed, it takes an act of Congress which the Budget Committee is not empowered to pass.
So it turns out that the total of these entitlement programs for 1978 comes to $222.8 billion. We cannot touch that. So if we were trying to cut 10 percent out of the total Federal budget, it would mean making a cut of 18 percent in the programs that we can control
So if we do that it means cutting defense $20 billion, the national resources, environment and energy functions $3.6 billion, highways $5.4 billion, community and regional development $1.9 billion, education $4 billion, health research and other services $1.4 billion, the food stamp program $1 billion, the child nutrition program $1.1 billion, SSI $1.1 billion, and revenue sharing $1.7 billion.
It takes a very sharp cut in controllable programs, something like 18 percent, in order to produce a 10 percent cut in the Federal budget.
I also have a budget here in balance. It shows what we have to do to balance the budget. Having gone through this 10 percent cut we still wind up with a deficit of $18 billion. A 16 percent cut across the board gives us an $18 billion deficit. It requires a cut of almost 20 percent in controllable items, including defense. We have to balance that imbalance by cutting the non-controllable items, and that takes an even greater cut because the 10 percent still leaves us with an $18 billion deficit. If we are going to go in and cut the non-entitlement programs enough to balance the budget it would mean taking a 25 percent reduction in each of these, and it would create such a negative impact on the economy that the revenues would go down so that even at that we would not have the budget in balance.
All of us on the committee share the Senator's concern. As a practical matter, the budget we brought to the Senate is as good as we can do under the present circumstances.
Mr. HARRY F. BYRD, JR. I do not think anyone advocated or stated that the budget can be balanced in 1 year. The only way the budget is going to be balanced is if the trend is in the direction of a balanced budget. This is what concerns me: The trend is not in the direction of a balanced budget. It is getting more out of balance instead of more in balance.
Mr. BELLMON. If the Senator will yield, the trend is in the right direction because we are cutting below current services expenditure levels. If the Senator will look at the figures, he will find each year since the budget process has been in place we have reduced the level of Federal spending below what it would have been if we had simply continued the existing programs and factored in the effect of inflation. So we are making substantial reductions in the controllable items over the years by holding below current services policy.
Mr. HARRY F. BYRD, JR. That is very fine. What the Senator is saying is that the spending is not increasing to the same degree it would have increased if it had not been for the Budget Committee, and that is fine.
Mr. BELLMON. This is the reversal of past trends.
Mr. HARRY F. BYRD, JR. I certainly commend the Senator and the committee for that. But insofar as the deficits are concerned we still are going in the opposite direction from a balanced budget because, as I have pointed out, there has been only 1 year where the deficit has been greater than it will be in the upcoming year. But so far as the point the Senator from Oklahoma makes it is certainly a good one, that had it not been for some effort on the part of the Senator from Oklahoma and the Senator from Maine, and others, the rate of increase would have been even greater than it has been.
Mr. President, I recognize the difficulties which face Congress and for that matter the administration. I certainly do not expect the budget to be balanced in 1 year. It would not be practical to do that. But I do think that it is very important that this country get back to a balanced budget, and I do not see how we are going to get back to a balanced budget unless we set the trend. By that I mean unless we substantially reduce our deficits each year until we can get back to a balanced budget rather than increasing the deficit.
Mr. BELLMON. Mr. President, will the Senator yield?
Mr. HARRY F. BYRD, JR. I yield.
Mr. BELLMON. Mr. President, I ask unanimous consent to have printed in the RECORD a chart showing the action that would be required to balance the budget for fiscal year 1978 and also another chart showing what a 10 percent across-the-board cut in Federal spending would mean in various categories.
There being no objection, the charts were ordered to be printed in the RECORD, as follows:
[Chart omitted]
Mr. MUSKIE Mr. President, I have information that might appropriately be printed in the RECORD at this point. I have a memo on the economic effects of attempting to balance the fiscal year 1978 budget, and this memo covers probable economic consequences in three hypothetical cases. One involves cutting outlays, or increasing taxes, by $63 billion, another by the full amount necessary to balance the 1978 budget, and the third by an outlay cut of 10 percent.
Each of those policy options would result in severe economic consequences.
I ask unanimous consent that the memo and an attached table be printed in the RECORD for the benefit of Senators.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
COMMITTEE ON THE BUDGET,
Washington, D.C., May 3, 1977.
ECONOMIC EFFECTS OF ATTEMPTING TO BALANCE THE FISCAL YEAR 1978 BUDGET
We have estimated the effects on GNP, employment and inflation in 1978 of attempting to balance the FY 1978 budget. The results are summarized below and explained more fully in the table on page 2.
Case A: Cut Outlays (or Increase Taxes) by the Estimated $63 Billion Deficit for FY 1978
An attempt to balance the FY 1978 budget by cutting outlays by the amount of the estimated deficit would lower GNP by $95 billion, eliminate 4.7 million jobs and raise the unemployment rate by 1.4 percent by the end of 1978. The inflation rate during 1978 would be 0.3 percent lower at the end of 1978. Because federal receipts would fall by $24 billion in this policy induced recession, the attempt to balance the budget would prove self-defeating, and the deficit would fall by only $39 billion.
As shown in the table, tax increases of the same magnitude would have roughly similar effects.
Case B: Cut Outlays (or Increase Taxes) by the Full Amount Necessary to Balance the FY 1978 Budget
Because of the lower federal receipts produced by a weak economy, it would be necessary to cut outlays by about $100 billion in order to balance the FY 1978 budget; if this were done the decline in GNP would be $145 billion, 2.8 million jobs would be lost and the unemployment rate would be 2.3 percent higher at the end of 1978. Inflation during 1978 would be 0.4 percent lower. The effects of the tax increases required to balance the FY 1978 budget are also shown in the table.
Case C: Cut Outlays by 10 Percent
A 10 percent reduction in outlays would lower GNP by $65 billion and employment by 1.2 million at the end of 1978. The unemployment rate would then be 1.0 percent higher and the inflation rate 0.3 percent lower during 1978.