Balanced Budget Proves Elusive : Gramm-Rudman Fails to Break Spending Patterns

A year ago, Congress promised that the newly enacted Gramm-Rudman law would balance the federal budget by 1991. If the first year’s experience under the act is any indication, however, an end to the red ink is a lot further away than that.

Although the deficit is expected to shrink next year from this year’s record $230 billion, Congress will not be able to take much of the credit. Most of the likely reductions will stem from changing economic conditions and from bookkeeping gimmicks. And the 1987 deficit will remain at a formidable $154 billion even under current, probably optimistic, estimates.

“The purpose of Gramm-Rudman was to break the gridlock between the President and Congress on facing the tough choices (but instead) we’re still playing the same old game,” said California Rep. Leon E. Panetta (D-Monterey), one of the principal architects of the compromise version of the bill that ultimately became law.

If Gramm-Rudman failed to break the old patterns this year, when it still had some of the political momentum that led to its passage, many believe that it has little chance of forcing even tougher choices next year. There is general agreement that the prospects of meeting Gramm-Rudman’s declining deficit targets will grow increasingly bleak.

“My guess is that Gramm-Rudman is gone,” said Sen. William L. Armstrong (R-Colo.), a Senate Budget Committee member who initially had been one of Gramm-Rudman’s enthusiastic backers.

In the eyes of many skeptics, Gramm-Rudman--formally known as the Balanced Budget and Emergency Deficit Control Act of 1985--was never much more than a political shield that senators and congressmen could use if voters became enraged over the continued growth of the deficit. With no such citizen revolt in sight, these skeptics say, the pressure is off and Gramm-Rudman can be ignored.

More concretely, the Supreme Court dealt a severe blow to the measure by ruling unconstitutional the act’s key provision: that across-the-board spending cuts would occur automatically if Congress failed to reduce the deficit enough to meet Gramm-Rudman’s annual targets. That decision “changed everything. The law really would have worked,” contended Stanley E. Collender, a budget analyst with Touche Ross & Co.

After the court decision, Congress pledged to bring the projected fiscal 1987 deficit down at least to $154 billion. The law set a $144-billion target for the 1987 deficit and required across-the-board cuts to reach that level if Congress could not come within $10 billion of the target on its own.

Congress reached the $154 billion, but only on paper--and only by voting to sell so many loan portfolios and other government assets that Sen. Daniel J. Evans (R-Wash.) termed the last-ditch deficit-reduction legislation a “giant garage sale.”

Creative Accounting

Congress also resorted to creative accounting. In one particularly deft maneuver, it voted to make the final payments to local governments under revenue sharing five days earlier. That means the $680-million payment will add to this year’s deficit, which no one is paying much attention to any more, rather than next year’s.

Conspicuously absent from this year’s legislation were tax increases, which President Reagan opposes but many members of both parties on Capitol Hill say are needed to cut the deficit. Nor were there any drastic reductions in spending. The Pentagon’s credit line will be cut somewhat, as it was this year, and only one major federal program, general revenue sharing, will be terminated.

Most analysts and even lawmakers themselves say that Congress also greatly exaggerated the deficit reductions that will result from the steps it has taken. When the books are closed on fiscal 1987, analysts and many congressmen say, the actual deficit will prove to be more like $180 billion than $154 billion.

A Significant Decrease

Even a $180-billion deficit in fiscal 1987 would be a significant decrease from this year’s $230 billion. However, more than three-quarters of that progress should be credited to such outside forces as economic growth and low interest rates, according to projections by the Congressional Budget Office.

Still, Sen. Phil Gramm (R-Tex.), who conceived the law with fellow Republican Sen. Warren B. Rudman of New Hampshire, insisted that it “clearly has worked.” Whereas total discretionary federal spending has grown an average of 11.2% in each of the past 10 election years, Gramm said, it is expected to decline slightly as a result of the bills being passed this year for fiscal 1987.

“In the absence of Gramm-Rudman, I think there’s no question that spending would have grown at least the average,” Gramm said. That would have meant another $20 billion in red ink next year, he said.

And, in smaller ways, Gramm-Rudman has already had a measurable impact. One of its lesser-noticed provisions makes it difficult for the full House or Senate to amend legislation in ways that would aggravate the deficit.

Popular Deduction

Many on Capitol Hill say this was the major force that prevented the Senate from peppering this year’s tax-overhaul legislation with tax breaks. They point particularly to the Senate’s failure to overturn the Finance Committee’s decision to cut back the popular individual retirement account deduction, a step that would have cost the government $15 billion over five years.

Gramm-Rudman was also credited with putting some restraint into the single major fiscal 1987 spending bill expected to be passed this year--an omnibus measure known as the “continuing resolution” that combines Congress’ 13 regular appropriations bills. Although Congress usually loads such bills with pork-barrel spending that benefits the districts of individual congressmen, the House-passed version of the bill officially came in $200 million below the ceiling that Congress had set. The Senate has not yet passed its version.

“If you look at Gramm-Rudman in the narrow focus of getting the deficit down and tying Congress’ hands, it’s done that,” said Steven E. Bell, a former top aide to the Senate Budget Committee.

But now that many of the easy deficit-reduction moves are behind it, Congress soon must turn to fiscal 1988, which begins Oct. 1, 1987. For that year, Congress could be faced with reducing the projected deficit by as much as $70 billion to meet Gramm-Rudman’s $108-billion target for fiscal 1988.

Artful Dodging

“This year, everybody will artfully dodge whatever pieces of heavy masonry are falling off the roof,” said Sen. Alan K. Simpson (R-Wyo.), the Senate’s second-ranking Republican. “Next year, Democrats and Republicans are going to be looking around this joint for every single rat hole they can jump in.”

Simpson, for one, thinks that means the Congress and President Reagan will finally take an “honest look” at federal programs in which spending has become uncontrollable, such as Social Security, Medicare and veterans’ benefits.

But many others, including Senate Budget Committee Chairman Pete V. Domenici (R-N.M.), have said that spending cuts alone cannot do the trick, that it will take tax increases that Reagan has promised to veto and use as a political weapon against those who propose it.

“It really does boil right down to taxes,” said Wendell Belew, a former top aide to the House Budget Committee who operates a consulting practice specializing in the federal budget.

‘Just Not Doable’

Collender of Touche Ross said Congress will find it impossible to cut the deficit enough to reach its fiscal 1988 target. “For political, technical and economic reasons, that’s just not doable,” he said. Instead, he predicted lawmakers will alter the Gramm-Rudman targets.

An economic downturn could let Congress off the hook, because one of Gramm-Rudman’s provisions allows the act to be discarded during a recession. But a worsening economy, Panetta said, could also mean giving up any opportunity to bring the deficit under control in the near future.

Because it requires sacrifice, he said, “deficit reduction is best done in good times, and what we’ve done basically is given up our best options.”