Deficit Tricks

Last year Congress, with the Administration’s tacit collusion, jimmied the federal budget figures to reach the Gramm-Rudman-Hollings deficit-reduction target of $154 billion--in theory. In fact, barely was the ink dry on the budget document than the deficit puffed back up again; it is now expected to be $174 billion by the end of the fiscal year on Sept. 30.

This year, at least, Congress is attempting to deal more rationally with the robotic brainchild of Sen. Phil Gramm (R-Tex.) and friends. The Democratic chairmen of the Senate and House budget committees have suggested that Congress aim for a deficit of $130 billion rather than the unrealistic $108 billion set by the law passed in the budget-balancing frenzy of late 1985. That still would provide a healthy reduction in the deficit in the $40-billion range. Gramm-Rudman proposed to cut the deficit by successive $36-billion steps over five years.

President Reagan’s budget pretends to reach the $108-billion figure, and the White House has decried any erosion in the sanctity of Gramm-Rudman. But the Congressional Budget Office has exposed the Reagan budget for what it is: flimflam. It would require, by Aug. 15, the chopping of $61 billion from current expenditures, the CBO said. Otherwise, Gramm-Rudman’s automatic cuts would be triggered, although the U.S. Supreme Court has ruled that such cuts are not legally enforceable.

The Reagan budget is realistic only if it is assumed, wrongly, that Congress suddenly is willing to accept $20 billion to $40 billion in domestic cuts that have been rejected time and again. The Reagan budget also relies on a variety of revenue-raising devices that either will not be accepted by Congress or will have no real effect on the deficit. The congressional approach does not hit the target with precision, but it still achieves the intent of Gramm-Rudman by putting the annual deficit on a significant downward course.

Also encouraging about the budget debate this year is that some words of reason are being heard from some important sources. Federal Reserve Board Chairman Paul Volcker has told Congress that sticking to the deficit target is important in terms of process, but he added: “The most important goal is to bring the deficit down credibly, and bring it down as much as you can.” The key word there is credibly . A $40-billion reduction proposed by Democratic congressional leaders, if it can be achieved, certainly is more credible than the White House approach.

Herbert Stein, chairman of the Council of Economic Advisers under President Richard M. Nixon, said that deficit reduction for the sake of deficit reduction is not necessarily productive. “We should ask whether the costs of another dollar of deficit are greater or less than the benefits of another dollar of deficit . . . . My argument is not for deficits. It is for open-minded decisions, as well-informed as they can be.”

Indeed, not all economists agree that all deficits are evil or that cutting the deficit by fiat is good. Northwestern University Prof. Robert Eisner, in his book “How Real Is the Federal Deficit?”, rejects the argument that deficit spending necessarily crowds out private investment. In many cases, he says, deficits actually stimulate investment, demand and output, and have indeed done so in recent years. Ultimately, according to Eisner, budget cuts should be made on their own merits, not just to make the deficit figures look good.

A new wild card is on the table now with the possibility of a tax increase. House Speaker Jim Wright (D-Tex.) is ready to fight for one in the range of $20 billion. Perhaps Wright and other leaders can persuade the “new” White House that such a levy is the only realistic way to achieve significant additional cuts in the deficit.

If the White House truly is interested in cooperating with Congress this year, the deficit is the place to start.