Defense, inflation squeeze 1981 budget

A basic shift in national spending priorities toward defense -- and away from social programs -- is reflected in President Carter's new federal budget. Details of the fiscal 1981 budget cannot be disclosed at this writing, but this shift shines through what the President and his aides already have said in public.

* Defense spending, Mr. Carter says, will be increased by 5 percent in real terms. Further boosts in military outlays are promised for the years ahead.

* The 1981 federal deficit, the President hopes, will be cut to less than half the current shortfall of an estimated $40 billion.

Putting these elements together, "new [social] initiatives are going to be very scarce in the future," a top White House official concedes.

Inflation also worsens the squeeze on social spending. Many existing human resource programs -- social security, for example -- are tied to the performance of the Consumer Price Index. As prices rise, so do benefit payments.

Last July social security benefits jumped 9.9 percent. This July, officials say, payments to 35 million Americans may increase by 13 percent, based on the Consumer Price Index.

In 1979 this key index soared by 13.3 percent, highest rate of inflation since 1946. The 1979 rate even outstripped the 12.2 percent of 1974, when world oil prices quadrupled.

Not only social security payments, but most welfare benefits will also rise by 13 percent this year.These include food stamps, child nutrition, disability programs, and special payments to the neediest of older Americans. Medicare and medicaid outlays will grow.

These and other "uncontrollables," which the President is powerless to change , now comprise 75 percent of the budget and will drain off extra billions of taxpayer dollars this year -- just to maintain programs at current levels.

In dollar terms, the $616 billion outlays called for in President Carter's 1981 budger bulk much larger than the estimated $564 billion worth of spending in the current 1980 budget.

But, officials stress, almost all of that increase is eaten up by extra spending mandated by law in the "uncontrollables," plus higher military outlays.

"Based on the above," a senior White House official said, "you can see how difficult it is to get federal spending down."

"If we are going to continue to increase defense spending," said another official, "and the President's State of the Union address called for more than 20 percent over the next five years, we are going to have to take some very tough decisions on national priorities."

If all this puts the federal government under great financial strain, it does the same and more to American families, who must come up with the tax money to pay for government programs.

Inflation and taxes combined, the US Department of Labor says, last year cut the average worker's purchasing power by 5.3 percent and left him no farther ahead than he was nine years ago.

Roughly 81 cents out of every $1 collected by the federal government comes from individuals -- 45 cents in income taxes, 30 cents in payroll (social security) taxes, and 6 cents in excise taxes.

Families cry out for tax relief.Yet none is foreseen this year, lest the government lack money to buy new weapons and pay social security and other benefits decreed by law.

If the tax burden becomes so great that Congress votes a tax cut, the federal government will go deeper into debt and the deficit will swell beyond the projected $16 billion for fiscal 1981.

This would be the wrong direction, so far as President Carter is concerned. He still projects balanced budgets in the future, possibly as early as fiscal 1982.

Government borrowing to pay bills -- 3 cents of every dollar now is borrowed by the US Treasury -- tends to push up interest rates and adds to inflation. It also boosts the national debt and increases the amount of tax money the government spends on interest to service the debt.

Net interest on the national debt now costs the US Treasury about 9 cents out of every dollar spent by the federal government.

Carter administration officials, who deny they are turning their backs on the poor, stress that more money than ever is being spent on social goals, through social security, food stamps, and other entitlement programs.

New social initiatives, however, are cut to the bone. Mr. Carter has said he will propose some extra spending for youth employment programs and in special aid to the elderly.

The overall squeeze on new social initiatives by government will grow tighter , if -- as many analysts here expect -- events or Congress, or both, boost defense spending beynd the level proposed by Mr. Carter in his 1981 budget.