A bill introduced May 22 by Sen. Edward M. Kennedy (D-Mass.) proclaims a peace dividend of $211 billion. The bounty, to be harvested from defense over the next five years, would go into a trust fund reserved for social programs and other "fundamental investments."
Meanwhile, the Joint Economic Committee of Congress is in less exuberant spirits. After reviewing the latest data, the Committee predicted May 8 that the federal deficit for Fiscal Year 1991 will be $180 billion--about three times higher than the Administration was forecasting just a few months ago.
The unvarnished reality is harsher yet. If a Social Security trust fund "surplus" is factored out of the calculations, the deficit probably approaches $260 billion.
By October 16, the deficit must be within a $10 billion tolerance of the $64 billion ceiling set for this year by the Gramm-Rudman-Hollings Act. Otherwise, automatic provisions of the law take over and allocate cuts--potentially more than $100 billion worth--by formula.
Last year, the government struggled mightily to resolve a deficit that, by official (and incredibly contrived) accounting, was only $16.1 billion over the limit. In June, with eight months of Fiscal Year 1990 elapsed, major questions about FY 1990 outlays were still hanging.
The government is in no position to cope with a reduction six times the size of last year's, much less to begin distributing any peace dividend. As an Administration budget official puts it, a sequester of FY 1991 outlays would be so huge that "it would blow the doors off everybody."
Gramm-Rudman calls for the deficit to disappear altogether by 1993. Government leaders believe that balancing the budget, even allowing another five years to do it, would take about $500 billion in further cuts and revenues. If the savings and loan crisis gets worse, the bill would be considerably higher.
The nation worked itself into this mess by stages, beginning with enactment of Gramm-Rudman in 1985. The politicians abrogated their basic responsibility. They created an automatic process to make decisions they refused to make themselves. Furthermore, fearful of antagonizing powerful blocs of voters, they exempted more than half of the outlays, entitlement programs in particular, from reduction.
It would be possible, the nation convinced itself, to eliminate the deficit, avoid taxes, and preserve social programs intact. The trick was to finance the fantasy with reductions to defense.
The nation also decided that defense was to blame for the deficit. Based on that trumped-up logic, Gramm-Rudman stipulated that half of any automatic cuts must fall on defense. It was somewhere around this point that the fantasy began to turn on its keepers. It put them on a path that could not possibly lead to honest answers.
Even now the nation persists in its demand for a painless solution. The public is opposed to higher taxes, yet it is unwilling to curb its appetite for entitlements. Those who preach a peace dividend encourage belief in options that do not exist.
Senator Kennedy charged in February that "America paid a high price here at home" for defense spending in the 1980s and that it was high time to cut defense in favor of "our enormous unmet national needs." The New York Times sings in harmony with him: "For too long, domestic needs have been shortchanged by spending for military security."
The facts say otherwise. In 1969, the federal budget balanced. In the years that followed, defense took a generally declining share of federal outlays. This was especially true in the Gramm-Rudman period, from 1985 on, when defense spending fell sharply. The big growth has been in entitlement programs, which, protected from reductions, climbed through the top of the budget charts.
Defense and discretionary accounts in other federal departments have taken massive cuts. Social and entitlement programs, on the other hand, have continued to expand. Naturally enough, the nation's financial problems did not go away.
Little more than a fig leaf remains to cover the pretense, and the leaf has begun to slip as we approach the $64 billion deficit limit for FY 1991. It is not feasible for the government to reduce outlays by $100 billion--or even by a somewhat smaller sum that the politicians may pretend is the deficit--by October 16, and everybody knows it.
Radical defense cuts can't make a dent in the problem. If the Pentagon released another 100,000 troops, laid off 100,000 civilian employees, and canceled more than a dozen of its prime weapons programs, the outlays saved would amount to less than four percent of the projected deficit.
Gramm-Rudman and the fantasies that go with it have run their course. Even the false comfort they have been providing is about to disappear. It's time we tried a more realistic approach.
The next Daily Report will be Tuesday, Feb. 19, due to the Presidents Day holiday.
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