1987 Ad

National Review, April 25, 1986 by Stuart Butler, Burton Pines

LEARNING TO LOVE GRAMM-RUDMAN

As If some gigantic meteor were hurtling toward the city, Washington, D.C., is girding for an apocalypse. Warnings of doom, chaos, and catastrophe fill the air. All that is missing are those solemn men pacing the sidewalks with sandwich boards proclaiming: THE END IS NEAR.

What is terrifying the capital is the Gramm-Rudman-Hollings budget act, which mandates sharp deficit reductions each year until the federal budget is balanced in 1991. If Congress and the President fail to meet Gramm-Rudman's annual deficit-reduction targets, then automatic cuts will be imposed. These cuts, say many observers, will be so politically painful that Ronald Reagan will have no choice but to reverse his Revolution, raising taxes and abandoning the rebuilding of U.S. defenses.

The truth is that Gramm-Rudman should be viewed not as a threat but as an opportunity--a shift in the political dynamics that have given us decades of overspending. President Reagan could exploit this change in dynamics to win what would be one of the most important victories of the Reagan era. Gramm-Rudman can be used to eliminate some federal programs, streamline many more, and transfer others to the private sector and the states, fundamentally altering Washington's role.

Washington already is facing its first encounter with Gramm-Rudman. At the insistence of the Democratic leadership, which apparently would not mind seeing the process discredited, the bill requires cuts even for the current (1986) fiscal year. As a result, Gramm-Rudman's automatic deficit-reduction formula has taken over, making the Capitol's first experience with the measure chaotic and painful.

This need not be true for subsequent years. Before fiscal 1987 begins this October, President Reagan will have ample opportunity to wage a battle for budget cuts on his own terms. With Gramm-Rudman, 1986 could be for federal spending what 1981 was for taxes--a watershed year in which Ronald Reagan educates the American public and wins its backing for a victory over Washington's vast army of special interests. Reagan can achieve this by standing firm and welcoming budget showdowns with Congress. With a carefully honed and consistent strategy of vetoes, he need accept neither tax hikes, damaging defense cuts, nor mindless across-the-board spending reductions. If he is willing to dare Congress and the special interests to "make my day," he can prevail.

Friedman's Law

To A CERTAIN extent, this has already been his strategy. His repeated promise to veto any tax increase is based in part on Milton Friedman's axiom: "Government spends what government receives plus as much more as it can get away with." By refusing nominal "revenue enhancement" (for it is not clear that a tax increase would actually raise revenues), Reagan has curbed Congress's appetite somewhat. He needs to continue his absolute resistance to tax increases; he needs as well to point out more clearly that the deficit is the result of spending growth. In the past five years revenues have risen 31 per cent, but spending has risen more. Nor are current tax rates low, historically.

Gramm--Rudman will allow Reagan to enhance this basic strategy. It will demonstrate to the public that keeping federal activities at their current level can only come at the cost of higher taxes or impaired national defense. The more President Reagan vetoes congressional spending measures during the Gramm-Rudman debate, the more the public will understand the necessity of making tradeoffs to reduce the deficit. Once the country and Congress are placed in a position of considering not whether to cut but what to cut, the true merits and demerits of certain federal programs will become much clearer. Making tradeoffs is a learning process; what the American people may learn is just how badly Congress has been spending their money.

Gramm-Rudman's automatic reductions kick in only if the federal deficit exceeds the Gramm-Rudman ceiling--$144 billion in fiscal 1987, which begins next October 1--and only for those amounts over the ceiling. These automatic cuts give Gramm-Rudman its teeth and inflict the most pain, for they are imposed across the board on all federal programs, regardless of merit. A few programs are exempted, such as Social Security, interest on the federal debt, Aid to Families with Dependent Children, and food stamps. Still, there is no question that massive, mindless across-the-board cuts of this kind can cripple legitimate and valuable federal activities. This threatened hardship, however, should provide the incentive for both Congress and the White House to focus on truly wasteful programs.

The obvious counterattack, for those whose interests require that the whole deficit-cutting attempt be discredited, is the "Washington Monument Ploy." They will propose, as the only budget cuts possible, such assuredly unpopular measures as closing the Washington Monument to tourists, closing Yellow-stone National Park, reducing the number of federal meat inspectors and air-traffic controllers, and buying no more jet fuel for Air Force pilot training. The aim is to trigger such public outcries that the entire effort to bring federal spending under control will be undermined, allowing Washington to return to business as usual.