Thorny Issues Make 1991 Budget Debate Especially Complex

By Julie A. Miller — February 07, 1990 9 min read

Washington--Even before President Bush unveiled his proposed federal budget for fiscal 1991, it was clear that it would not be business as usual during this year’s budget debate.

With the political jostling over next year’s budget under way, the annual argument over how much should be allocated to which programs is being overshadowed by larger questions and concerns. Three developments in particular have complicated the budget-setting process this year:

  • The enormous changes that unfolded last year in the Communist bloc have led to a clamor for cuts in the defense budget;
  • A Democratic Senator has set off a political storm by proposing large cuts in Social Security taxes; and
  • Efforts to alter, replace, or extend the Gramm-Rudman-Hollings deficit-reduction law have picked up steam.

The outcome of these debates could have a powerful influence not only on the amount of federal money earmarked for education in the fiscal year that begins on Oct. 1, but on the number of federal dollars available for such programs for years to come.

“The entire budget picture is wide open this year,” said Susan Frost, executive director of the Committee for Education Funding. “There is no way to predict what September is going to look like in January.’'

These budgetary developments, she added, “could drastically change the picture for all domestic discretionary programs, especially the priorities.”

The ‘Peace Dividend’

Talk of a “peace dividend” began in November, when word leaked out that Secretary of Defense Richard B. Cheney had asked military leaders to budget for a $180 billion decline in defense outlays over six years.

Marian Wright Edelman, president of the Children’s Defense Fund, proposed spending $27 billion a year on child-care services and anti-poverty efforts. John Jacob, president of the National Urban League, argued for a $50-billion “urban Marshall Plan.” Others have proposed spending the money on housing, highway maintenance, or tax cuts.

A group of Democratic lawmakers, led by Representative Barney Frank, Democrat of Massachusetts, proposed cutting $18 billion in outlays in 1991, $3 billion of which would be devoted to education and training programs.

In reality, however, despite all the talk, there probably will be no substantial peace dividend, at least not this year.

“If there is any dividend this year, it will be too small to notice,” a Democratic appropriations aide said. “There is no huge pot of money to divvy up. None. Nothing. Nada.”

“Kindly help get the word out,” the aide added.

As it turned out, the $180-billion “cut” Mr. Cheney proposed was to be taken from the amount of defense-budget growth projected by the Administration for the years 1991 to 1996--a wish-list the Congress was not likely to endorse--rather than from the current expenditure level.

The $303 billion in defense outlays included in President Bush’s proposed 1991 budget, while a far cry from the generous defense budgets of the Reagan era, is actually $6 billion more than was earmarked for 1990. It is only about $3 billion below the 1991 “baseline,” the amount needed to keep up with inflation.

And Democrats have noted critically that many of the cuts come from such initiatives as procurement reforms and that no major cuts in weapons systems were proposed.

“If there’s going to be a peace dividend,” Senator Jim Sasser, the Tennessee Democrat who is chairman of the Senate Budget Committee, told reporters last week, “this Congress is going to have to carve it out.”

Most observers predict the Congress will trim Mr. Cheney’s proposed budget, and several Democrats have already put proposals on the table. Mr. Sasser, for instance, has proposed weapons cuts that could save $90 billion over several years.

“Most budget types realize there really isn’t a peace dividend,” a Democratic budget aide noted, “but there are members who want to believe there will be a significant peace dividend and create one by cutting defense more than the President proposed and using it for domestic programs.”

“To some degree, that will happen,” the aide said. “We will cut defense more, and will somehow find more money than was requested for education, more than was requested for child care.”

But much of the savings are likely to be used to cut the deficit.

To meet the $64-billion target set for 1991 by the Gramm-Rudman deficit-reduction law, the Congress and the Administration must cut about $36 billion from the “baseline” federal budget, a figure that will probably rise as the Congress approves new initiatives over the course of the year.

Robert D. Reischauer, director of the Congressional Budget Office, told the Senate Budget Committee last month that defense cuts twice the size of those proposed by the Administration would slash federal spending by $33 billion in 1993 and $68 billion in 1995.

However, he said, those savings “would be only a quarter of what is needed to balance the budget in 1993.”

“In the short term,” said Michael Edwards, manager of Congressional relations for the National Education Association, “it’s unrealistic to anticipate a large pot of money that can be used for other purposes.”

“It’s like getting a break on your credit-card bills,” he said. “You don’t get any money, but you don’t owe American Express as much.”

In addition, a consensus on what defense expenditures to cut could prove elusive, especially once lawmakers begin defending programs that produce jobs in their states and districts. And the most meaningful defense cuts, those in expensive weapons systems, provide mostly future, not immediate, savings.

Finally, some savings from defense cuts are likely to be consumed by the costs of change, such as the expense of closing military bases and efforts to help displaced defense workers. Several bills aiming to help industry and workers make such a transition have been introduced this year.

‘Not Money in the Bank’

In a speech last month to the Cincinnati Chamber of Commerce, President Bush likened those making proposals for spending a “peace dividend” to “the next of kin who spent the inheritance before the will is read.”

“And, unfortunately, what is being packaged as a ‘dividend’ is not money in the bank,” Mr. Bush said. “It is more like a possible future inheritance.”

Many observers agree that a peace dividend could become a reality in the future.

In statements that are likely to be quoted repeatedly, Robert S. McNamara, Defense Secretary in the Kennedy and Johnson Administrations, and Lawrence J. Korb, an assistant defense secretary in Ronald Reagan’s first term, told the Senate Budget Committee that the defense budget could be cut in half over the next decade, by increments of about $15 billion a year.

“That could add up to real money eventually,” a Republican budget aide said.

Keith B. Geiger, president of the NEA, has touted a potential peace dividend in speeches and articles, arguing generally for shifting expenditures from weapons to education. But most education advocates have not added the idea to their rhetorical arsenal.

“The arguments we make about education are based not on a peace dividend, but on the fact that it is something that has to be done,” said Nicholas J. Penning, legislative specialist for the American Association of School Administrators.

“There’s a view on the part of some education lobbyists, at least, that the peace dividend is a trap,” said the NEA’s Mr. Edwards. “It allows some members of the Congress to say they will fund education if there is a peace dividend, but until then, there are going to be rough times.”

In unveiling a proposal to nearly double education spending, the CEF never mentioned a peace dividend.

Ms. Frost said no conscious decision was made not to talk about it, but education advocates realized that any dividend would have to come from the Congress.

“Obviously, some of it will go for deficit reduction. The question is what domestic priorities can be addressed after the Congress does that,” she said. “At that time, we will certainly make a case for education as a top priority for any savings.”

Social Security

Another of the year’s major budgetary currents, the Social Security proposal advanced by Senator Daniel Patrick Moynihan, threatens to decrease the amount of money available for discretionary spending.

The New York Democrat caused a political uproar when he proposed that payroll taxes for Social Security be cut by $55 billion, arguing that they are not being used for the intended purpose of stockpiling funds for the retirement of those now in the workforce.

Because the funds are invested in Treasury securities, the growing surplus reduces the amount the Treasury has to borrow, and also reduces the overall federal deficit--on paper.

Mr. Moynihan argues that such an approach amounts to financing general expenditures with a tax that hits average working Americans harder than the wealthy, as well as dishonestly masking the deficit’s size.

The Senator has picked up unusual allies among conservative interest groups and lawmakers who generally favor tax cuts.

Democratic leaders, fearful of losing a substantial chunk of revenue and the support of Social Security beneficiaries, have praised Mr. Moynihan for pointing out the regressiveness and dishonesty of the current system, though they have stopped short of endorsing his idea.

Charging that Mr. Moynihan wants to force increases in income taxes, the Administration has proposed an alternative plan that would essentially extend the Gramm-Rudman requirements until the deficit was eliminated and the surplus paid back.

“The question is how you cut taxes and still meet the [deficit] target without cutting [our programs],"Ms. Frost said. “Nobody’s heard an answer to this.”

“I think this will be a significant part of the debate all year and might, in fact, force a reconsideration of the whole Gramm-Rudman law by this fall,” a Democratic budget aide said, “possibly toward the end of the year.”

Mr. Sasser has proposed a plan that would cut the payroll tax by $17 billion a year for seven years, provided that the deficit was also reduced by $30 billion in each year. His plan would also repeal Gramm-Rudman and take Social Security surpluses out of deficit calculations.

Mr. Sasser’s House counterpart, Representative Leon E. Panetta of California, last week proposed a plan to replace Gramm-Rudman with another mechanism requiring that $30 billion be cut from the deficit each year through 1993, and $20 billion a year thereafter until the budget was balanced, and also require spending increases or tax cuts to be offset by spending cuts or tax hikes. Mr. Panetta’s plan would remove the Social Security surplus from deficit calculations, but does not include a tax cut.

Some observers think the Congress will reconsider the deficit-reduction law this year even if Mr. Moynihan’s tax-cut proposal fizzles. Proposals to relax the deficit targets or extend the mechanism to rebuild the Social Security fund were made last year.

“There’s a lot of dissatisfaction in both parties, because it hasn’t worked,” a Republican budget aide said. “We’ve resorted to budgetary gimmicks, and there’s no incentive to do anything more meaningful.”

A version of this article appeared in the February 07, 1990 edition of Education Week as Thorny Issues Make 1991 Budget Debate Especially Complex