Political Interests Scramble for Slice of ‘Peace Dividend’

With the Cold War winding down, Keith Geiger has some good ideas about how to spend the “peace dividend.” Geiger, the president of the National Education Assn., would shift large sums of money from the roughly $300-billion-a-year military budget to such long-neglected domestic needs as early childhood education and child care.

But Sen. Pete V. Domenici (R-N.M.), one of Congress’ leading budget experts, warns that the savings are likely to be modest and wants to use them to reduce the still-outsized federal deficit. “Those who are looking for an instant pot of gold at the end of the defense rainbow,” he said, “are going to be disappointed.”

As the United States moves to spend less for guns, the argument over where any additional butter should be spread promises to dominate the political tug-of-war of the 1990s. At the same time, the pent-up demand for new domestic spending could well increase public pressures on the Pentagon to cut back even further to free more resources for other uses.

“For the first time in decades, we could have a real debate in this country over guns versus butter,” said Gordon Adams, director of the Defense Budget Project, a public interest group here. “But the issues go beyond just the peace dividend. What we’re really talking about is how best to prepare the U.S. economy for the 21st Century.”

The peace dividend is no mirage. Barring an unexpected revival of the military threat from the Soviet Bloc, the windfall from cutting U.S. defense forces might easily reach as high as $60 billion a year by the mid-1990s.

Dozens of claimants are already lining up for a piece of that future pie.

Liberal interest groups that have been squeezed out of the federal budget through the 1980s hope they will finally recoup some of their losses. Moving to counter such plans, conservatives want to cut taxes, starting with Administration proposals for capital gains tax reductions and tax incentives for personal savings. Further afield, some economists and foreign policy experts would like to see a new Marshall Plan for the emerging democracies of Eastern Europe.

Most of those now licking their chops, however, are going to be sorely disappointed. In addition to continual pressure to cut the budget deficit, which should curb some of the more outlandish schemes, such unavoidable needs as the cleanup of nuclear weapons facilities and the rebuilding of crumbling roads and sewers are likely to absorb a substantial chunk of the available money.

“If you listen to all those lining up for a share of the peace dividend, we’ve already spent it five times over,” one Bush Administration official complained.

The White House, hoping to resist pressures for new spending programs, says it wants to devote any defense savings to cutting the federal deficit.

Some people think that “if you cut defense spending by $10 billion, we can take that money and spend it on something else,” President Bush said last month. “They all have a wide array of programs. We can’t do that. We’ve got enormous budget problems.”

If the deficit, estimated at $128 billion, is slashed by cutting billions from defense spending, the economy could be the winner.

“From a national standpoint, a fall in the budget deficit of $80 billion would raise American national savings” and produce lower interest rates, said Charles L. Schultze, a leading Democratic economist at the Brookings Institution in Washington.

“Living standards would grow faster for a combination of two reasons: We would be investing more at home in productivity-improving projects, and we would be borrowing less from abroad, reducing the buildup in foreign debt service payments,” Schultze said.

In Congress, however, many lawmakers who have slogged painfully through the last decade of federal red ink want deficit reduction to take a back seat to a more visible payoff to voters. Like most liberals, Rep. George Miller (D-Martinez) wants to spend money for a range of programs--highway construction and child care, to name two.

“We need to start investing in the future of our country again--our children, infrastructure, the domestic economy,” the California lawmaker said. “If the tearing down of the Berlin Wall means nothing more than we put the (battleship) Missouri in mothballs or just stretch out some aircraft programs, we will not have accomplished much.”

L. Douglas Lee, chief economist at the Washington Analysis Corp., an investment advisory firm, pointed out that demands such as Miller’s are multiplying.

“It’s worth remembering that the resources freed by the defense spending decline that followed the Vietnam conflict were used to fund more generous social benefits,” he added.

Even the Bush Administration, for all its current emphasis on deficit reduction, would like to add money to education, space and anti-drug programs while cutting taxes for investors and savers.

No one really knows how deep the military spending cutbacks are likely to go. There was an initial wave of euphoria when Defense Secretary Dick Cheney disclosed shortly before Thanksgiving that the Pentagon was looking at ways to eliminate up to $180 billion in spending through fiscal year 1994. Many people were left with the mistaken impression that this year’s military budget of about $292 billion might be cut by more than half within the next few years.

The euphoria soon faded. Rather than cutting from current levels, military planners were looking only at reining in much higher spending projections. That $180 billion, spread over the next four years, actually represents a cut of only about 13% from the $1.38 trillion in spending the Defense Department had projected for itself over the 1991-1994 period.

In fact, defense outlays would rise slightly before adjustment for inflation. After such adjustment, the spending restraint would represent about 2.5% a year--roughly the same rollback Congress has forced the Pentagon to accept since its budget peaked in 1985.

And the $180 billion merely marked the outer boundaries of what the Pentagon might be willing to cut. Cheney has stated that he doesn’t want to go that far.

But he may not be able to hold the line. “Cheney’s limited plan can’t be taken as a serious benchmark,” argued Jeff Faux, president of the Economic Policy Institute, a Washington think tank that does research for liberal groups and labor unions.

Several key lawmakers are already demanding deeper cuts to generate more funds for domestic programs and deficit reduction.

Senate Budget Committee Chairman Jim Sasser (D-Tenn.), for instance, complained recently that he expects the White House to propose 1991 defense spending of $292 billion, up from $286 billion this year. That would save barely $5 billion next year out of the $35 billion to $40 billion required just to meet the Gramm-Rudman deficit target.

“The peace dividend, as currently constituted, is a rubber check,” Sasser argued. “We should be aiming for a military budget that returns to the post-Vietnam Nixon-Ford era average--somewhere in the range of $215 billion in constant 1990 dollars.”

If the Gramm-Rudman law makes the size of the peace dividend appear small, it will at least help the Bush Administration resist demands to use the dividend for domestic programs. That’s because Gramm-Rudman requires that defense and domestic spending be cut equally if Congress and the White House fail to reach the law’s deficit targets.

Democrats in Congress went along with the 1985 budget law because they thought it would force then-President Ronald Reagan to accept higher taxes in order to avoid deep defense cuts. But now that defense spending is likely to fall anyway, the White House has much less reason to bargain with lawmakers over the shape of the budget.

“Bush can just keep his arms folded and get pretty much what he wants,” said John Rother, legislative director of the American Assn. of Retired Persons. “He wants to use defense reductions to keep the budget under control and take the pressure off new taxes.”

But such legislative stratagems may not be able to resist the tidal wave of political demands for new domestic spending programs. As public fears of the Soviet Union fade, analysts say, the nation’s attention is likely to refocus on problems at home rather than threats from abroad.

“The old Republican framework of anti-communism and a strong defense is on the verge of breaking down,” said Kevin Phillips, a conservative political analyst.

As a result, Rother said: “People are going to demand the government respond to the problems they are facing in their daily lives. The baby boom generation, for instance, is just beginning to confront the question of who’s going to take care of mom and dad.”

Some conservative lawmakers, afraid that the popular appeal of deficit reduction is a weak counterweight to demands for new spending programs, are moving to oppose them instead with promises of further tax cuts down the road. Sen. Phil Gramm (R-Tex.) is already talking about the advantages of tax incentives for child care and inner city “enterprise zones” as conservative alternatives to government spending programs.

That’s not stopping liberal groups, however, from dreaming about the possibilities of a fundamental shift toward a peace economy. No one is more ambitious than the World Policy Institute in New York, which has prepared a $200-billion-a-year wish list that goes far beyond the current expectations about a peace dividend.

By the end of the century, the World Policy Institute says, the government should spend another $30 billion a year on worker training for future jobs, $22 billion in infrastructure improvements, $11 billion in new housing for low-income families and billions more for environmental cleanup. The program could be financed, the group contends, by cutting about $125 billion out of today’s defense budget and by increasing taxes by a nearly equal amount.

“It’s a whole new world when there’s no Berlin Wall,” said Faux, who contributed to the World Policy Institute study.

“The peace dividend is just a buzzword for the issue of where we should put our nation’s resources,” Faux said. “The public believes that our national security now depends on our economic strength, not our military power. So it’s time to start a debate about what new directions we should go.”

FOUR DEFENSE PLANS

DEEP CUT: cuts of an additional $15 billion each year below year growth. $15 billion a year less than needed to keep up with inflation.

-2% REAL GROWTH: the approximate path of the defense budget since 1986, after congressional cuts. Trend since 1986.

ZERO REAL GROWTH: what it would take for the defense budget to keep up with inflation.

PENTAGON PROJECTION: what it would take sustain Bush’s initial plans.

THEIR COSTS OF SAVINGS: (During four years, 1991-1994, compared with zero real growth.) The Congressional Budget Office regards zero growth as the baseline against which it measures the cost of other proposals. By this measure, here are the costs or savings of the other three plans during the four years from 1991-1994.

Source: Senate Budget Committee