Bush’s Budget Proposals Unveil GOP Agenda for ‘90s : Deficit: Although it seems to be soaring to new heights, it’s not as bad as it looks--especially with more spending cuts planned.

Democrats who have greeted George Bush’s budget proposals as “do-nothing” had better beware. It should be viewed, instead, as a foretaste of a Republican agenda for the 1990s--one that might, indeed, play quite well in Peoria.

The most notorious feature of the budget is the huge new deficit, some $318 billion, projected for the fiscal year that starts next October. On its face, that takes the deficit all the way back up, as a percentage of gross national product, to its level in the halcyon days of unrepentant “Reaganomics”--not even counting the extra spending for the war in the Gulf. Bush says he needs $15 billion more for the war, after hoped-for contributions from the allies.

But the deficit bulge is more apparent than real. One-third--about $111 billion--is spending to make good on insured depositors’ losses in bust savings and loans. In effect, the government will print $111 billion in new money and give it to the depositors. Since the depositors are no better off than when they started, and the country’s total spending power is unchanged, the net economic effect--leaving aside the inevitable frictions in the financial markets--is nil, or close to it.

Another large chunk of the deficit, some $37 billion, is tied to the recession, and represents the normal boost in federal unemployment and welfare payments when the economy turns down. The Administration, of course, is assuming a fairly short recession, and the deficit could be sharply higher if the downturn drags on. Whatever the actual recession-related deficit turns out to be, however, it is clearly a temporary phenomenon.

Once deposit insurance and recession spending is stripped away, the trend of the underlying deficit is definitely down, for three reasons. First, and most important in the near term, is the six-year plan unveiled by Defense Secretary Dick Cheney for an average annual 3% defense-spending reduction after inflation. Second is the cap on discretionary domestic spending negotiated with the Congress last year. Finally, and most important over the longer term, is the attempt to tie entitlement payments, like Medicare and farm supports, to personal wealth.

The only question about the defense-spending cuts is whether the Administration can hold the line at only 3% a year. Cheney’s six-year plan still includes a lot of high-profile spending programs, like the B-2 bomber and the Strategic Defense Initiative--ready targets for congressional budget-cutters’ knives.

But the big targets of spending cuts will be the standing armies, navies and air forces--by far the biggest consumers of defense dollars. Army divisions will be cut by one-third, with smaller reductions in the other services. The case for major cuts in the military Establishment is compelling, even in face of the Gulf War and the considerable backsliding from democratic reforms in the Soviet Union.

The central strategic reality of the Cold War was that Warsaw Pact armies were poised on the border of West Germany for offensive war in Europe. Up to half of U.S. defense spending is devoted to European defense, particularly to defending against a surprise ground attack.

Even on worst-case assumptions--say, with Red Army and KGB troglodytes in control of the Kremlin--surprise-attack scenarios no longer make sense. There is, for one thing, no more Warsaw Pact--the nations of Eastern Europe and the Soviet Union have officially signed the military alliance’s death certificate. The Soviet jumping-off point for any surprise attack automatically moved hundreds of miles farther east. More important, Soviet war plans assumed that at least a quarter of the troops in an initial assault would come from East Germany, Poland and Czechoslovakia. Now the Soviet Army would have to fight its way through those same troops.

The spectacular successes of the Gulf War, in the air and on the ground, demonstrate beyond doubt that with time to call up reserves and move troops, the United States can project formidable military power anywhere. Without stating it in so many words, the message of the Cheney budget is clear. There will be significant pullbacks in U.S. overseas troop deployments, particularly from forward bases in Europe and Asia, and the smallest standing military Establishment in 40 years.

The second major policy change in the budget is only foreshadowed. The proposal to raise Medicare premiums to elderly people with incomes more than $125,000 a year is a “whiff of grapeshot” to the oldsters’ lobbies. Entitlement programs, such as Social Security and Medicare, now account for half the budget. Capping their growth will eventually involve some form of means-testing so at least upper-middle-income people don’t receive federal payments that exceed the value of their lifetime contributions.

Capping entitlements will be bitterly resisted. But the Administration has proposed such high income cutoffs that the usual “heartlessness” arguments will ring hollow. The chances that the Administration’s proposals will pass this year are not high--but this is the opening salvo in what is likely to be the major ongoing budget battle of the 1990s.

The budget’s proposal to return small amounts of “block” funding to state governments signals a further backing away from the categorical assistance programs, one of the last legacies of federal social policy-making in the 1960s.

Democratic congressmen will resist cutbacks in programs for the poor--particularly poor women and children. But the budget spending caps leave little wiggle room. More important, the Administration seems to be betting the middle classes have limited sympathy for the inner-city poor--that to the average working stiff, urban social devastation stems more from personal irresponsibility than government stinginess.

Finally, there are substantial increases in science and research spending--at least partly to offset the fallout from reduction in high-tech weapons procurement.

Added together, it is a GOP budget with a long pedigree. In its major outlines, it is much in the mold of Dwight D. Eisenhower’s budgets of the late 1950s. Eisenhower believed in low deficits; small standing armies backed up by high-technology; stand-off weapons; robust spending for scientific research and development; limited, “safety net” entitlements programs, and in leaving all direct social- service interventions to the states.

Whether Bush has correctly divined the mood of the American public remains to be seen. The recent ballooning of Eisenhower’s historical reputation suggests he might have. But Democrats will be making a mistake if they assume there is no “vision” behind the budget. There is, and it is one that will not be to their liking. To counter it, they will have to come up with one of their own.