Those '88 budget cuts - critics say `outrageous,' but facts say otherwise

Many observers have reacted to the release earlier this year of the federal budget for fiscal 1988 with the complaint that the recommended cuts in spending were merely a rehash of unfair and unrealistic or previously rejected proposals. Given the natural cynicism raised by the annual budget ritual in Washington, it is useful to examine some of the proposed reductions in federal expenditures and see if they really are so outrageous.

A good example of the recommended budget cuts is the proposal to limit school lunch subsidies to children from families whose income is no more than 85 percent above the poverty level. That means that a family of four with income of $20,350 a year would still qualify for the federal benefits.

Under the new guidelines, nearly 13 million needy children would receive federally subsidized meals in 1988, at a total cost of $4 billion. By limiting the subsidy to those who need it most, the Office of Management and Budget (OMB) estimates that taxpayers will be saved more than $700 million a year. When the facts are known, the school lunch proposal hardly seems as austere as critics charge.

Here is another suggested change: OMB would like to cut back the lending by the Rural Electrification Administration (REA), now that more than 99 percent of all farms have electric service. It would eliminate direct lending at a subsidized 5 percent interest rate and the practice of issuing 100 percent guarantees of loans to electric cooperatives and telephone companies.

Interestingly, the proposed cutbacks would fall hardest on companies serving mainly urban and suburban areas. The REA is an excellent example of an agency that, having completed its mission, should ``just fade away.''

Another proposed cutback is directed at urban development action grants. At first blush, such action sounds heartless; after all, who does not favor action to develop urban areas? But when we learn that past grants have gone for hotels in resort locations such as Stowe, Vt., and Newport, R.I., and for office buildings for major financial institutions, our sympathy for the beneficiaries wanes.

These all sound like worthwhile investments, but they should compete in private competitive financial markets for their funds, rather than be subsidized by taxpayers.

OMB would also reduce funds for the agricultural extension service. This agency was created to provide agriculture and home economics instruction to the farm populations. But the services now provided include urban gardening and similar activities only remotely related to the needs of farm families. During a period of budget stringency, this program, too, seems to be a good candidate for pruning.

Another example of outmoded federal outlays that OMB would terminate are those that subsidize the training of doctors and other health professionals. When the program was started decades ago, there was a widespread feeling that the United States was facing a ``doctor shortage.''

With the very substantial expansion of trained health personnel that has occurred since then, that is hardly the case today. By 1985 there were 218 doctors for every 100,000 Americans, compared with 148 in 1965 - a 48 percent increase.

The proposed elimination of the Interstate Commerce Commission, and of the last vestiges of federal regulation of surface transportation, is surely long overdue. The cutbacks in trucking regulation, for example, have been a boon to the public by reducing the costs of distributing a wide variety of consumer products.

Another proposed regulatory reform is to raise the dollar threshold for coverage under the Davis-Bacon Act, which mandates that contractors on federal construction projects pay ``prevailing'' wages. The threshold has not been changed since it was set at $2,000 in 1935. Small business has borne the brunt of these provisions. Davis-Bacon requirements often mean that only companies using union labor can perform these contracts, thus shifting small, non-union companies out of the running.

But ultimately the higher cost of construction that results is picked up by the taxpayer.

A ruckus has been raised by the administration's proposals to charge boat owners for the cost of the special service provided to them by the Coast Guard. There is no good reason why the general taxpayer should continue to finance the search and rescue, inspection, navigation, and related services provided to commercial operators and recreational boaters.

The proposed $355 million in fees for fiscal 1988 would only make a modest dent in the federal deficit. But more important, the cuts would be a signal to other interest groups that continually demand that the federal government provide them services without charge.

Another proposal is to sell the two oil fields that the federal government operates - Elk Hills, Calif., and Teapot Dome, Wyo. There is no reason to believe that government can produce and market oil as efficiently as private companies. OMB estimates that the sales would reduce the deficit by $2.5 billion in 1988.

These proposals may be controversial - perhaps not all of them should be adopted - but they are worthy of serious consideration.

Murray L. Weidenbaum is director of the Center for the Study of American Business at Washington University in St. Louis and a former chairman of the Council of Economic Advisers.