As he and his staff went looking for the $40 billion, they found that most of it would have to be taken from the seventeen cents that covered government operations and grants-in-aid. Defense was already off-limits. Next Ronald Reagan laid down another condition for the budget-cutting: the main benefit programs of Social Security, Medicare, veterans' checks, railroad retirement pensions, welfare for the disabled—the so-called "social safety net" that Reagan had promised not to touch—were to be exempt from the budget cuts. In effect, he was declaring that Stockman could not tamper with three fourths of the forty-eight cents devoted to transfer payments.
No President had balanced the budget in the past twelve years. Still, Stockman thought it could be done, by 1984, if the Reagan Administration adhered to the principle of equity, cutting weak claims, not merely weak clients, and if it shocked the system sufficiently to create a new political climate. He still believed that it was not a question of numbers. "It boils down to a political question, not of budget policy or economic policy, but whether we can change the habits of the political system."
THE struggle began in private, with Ronald Reagan's Cabinet. By inaugural week, Stockman's staff had assembled fifty or sixty policy papers outlining major cuts and alterations, and, aiming at the target of $40 billion, Stockman was anxious to win fast approval for them, before the new Cabinet officers were fully familiar with their departments and prepared to defend their bureaucracies. During that first week, the new Cabinet members had to sit through David Stockman's recital—one proposal after another outlining drastic reductions in their programs. Brief discussion was followed by presidential approval. "I have a little nervousness about the heavy-handedness with which I am being forced to act," Stockman conceded. "It's not that I wouldn't want to give the decision papers to the Cabinet members ahead of time so they could look at them, it's just that we're getting them done at eight o'clock in the morning and rushing them to the Cabinet room ... It doesn't work when you have to brace these Cabinet officers in front of the President with severe reductions in their agencies, because then they're in the position of having to argue against the group line. And the group line is cut, cut, cut. So that's a very awkward position for them, and you make them resentful very fast."
Stockman proposed to White House counselor Edwin Meese an alternative approach—a budget working group, in which each Cabinet secretary could review the proposed cuts and argue against them. As the group evolved, however, with Meese, chief of staff James Baker, Treasury Secretary Donald Regan, and policy director Martin Anderson, among others, it was stacked in Stockman's favor. "Each meeting will involve only the relevant Cabinet member and his aides with four or five strong keepers of the central agenda," Stockman explained at one point. "So on Monday, when we go into the decision on synfuels programs, it will be [Energy Secretary James B.] Edwards defending them against six guys saying that, by God, we've got to cut these back or we're not going to have a savings program that will add up."
In general, the system worked. Stockman's agency did in a few weeks what normally consumes months; the process was made easier because the normal opposition forces had no time to marshal either their arguments or their constituents and because the President was fully in tune with Stockman. After the budget working group reached a decision, it would be taken to Reagan in the form of a memorandum, on which he could register his approval by checking a little box. "Once he checks it," Stockman said, "I put that in my safe and I go ahead and I don't let it come back up again."
The check marks were given to changes in twelve major budget entitlements and scores of smaller ones. Eliminate Social Security minimum benefits. Cap the runaway costs of Medicaid. Tighten eligibility for food stamps. Merge the trade adjustment assistance for unemployed industrial workers with standard unemployment compensation and shrink it. Cut education aid by a quarter. Cut grants for the arts and humanities in half. "Zero out" CETA and the Community Services Administration and National Consumer Cooperative Bank. And so forth. "Zero out" became a favorite phrase of Stockman's; it meant closing down a program "cold turkey," in one budget year. Stockman believed that any compromise on a program that ought to be eliminated—funding that would phase it out over several years—was merely a political ruse to keep it alive, so it might still be in existence a few years hence, when a new political climate could allow its restoration to full funding.
"I just wish that there were more hours in the day or that we didn't have to do this so fast. I have these stacks of briefing books and I've got to make decisions about specific options ... I don't have time, trying to put this whole package together in three weeks, so you just start making snap judgments."
IN the private deliberations, Stockman began to encounter more resistance from Cabinet members. He was proposing to cut $752 million from the Export-Import Bank, which provides subsidized financing for international trade—a cut of crucial symbolic importance, because of Stockman's desire for equity. Two thirds of the Ex-Im's direct loans benefit some of America's major manufacturers—Boeing, Lockheed, General Electric, Westinghouse, McDonnell Douglas, Western Electric, Combustion Engineering—and, not surprisingly, the program had a strong Republican constituency on Capitol Hill. Stockman thought the trade subsidies offended the free-market principles that all conservatives espouse—in particular, President Reagan's objective of withdrawing Washington from business decision-making. Supporters of the subsidies made a practical argument: the U.S. companies, big as they were, needed the financial subsidies to stay even against government-subsidized competition from Europe and Japan.
The counter-offensive against the cut was led by Commerce Secretary Malcolm Baldrige and U.S. Trade Representative William Brock, who argued eloquently before the budget working group for a partial restoration of Ex-Im funds. By Stockman's account, the two "fought, argued, pounded the table," and the meeting seemed headed for deadlock. "I sort of innocently asked, well, isn't there a terrible political spin on this? It's my impression that most of the money goes to a handful of big corporations, and if we are ever caught not cutting this while we're biting deeply into the social programs, we're going to have big problems." Stockman asked if anyone at the table had any relevant data. Deputy Secretary of the Treasury Tim McNamar thereupon produced a list of Ex-Im's major beneficiaries (a list that Stockman had given him before the meeting). "So then I went into this demagogic tirade about how in the world can I cut food stamps and social services and CETA jobs and EDA jobs and you're going to tell me you can't give up one penny for Boeing?"
Stockman won that argument, for the moment. But, as with all the other issues in the budget debate, the argument was only beginning. "I've got to take something out of Boeing's hide to make this look right ... You can measure me on this, because I'll probably lose but I'll give it a helluva fight."
Stockman also began what was to become a continuing struggle, occasionally nasty, with the new secretary of energy. Edwards, a dentist from South Carolina, was ostensibly appointed to dismantle the Department of Energy, as Reagan had promised, but when Stockman proposed cutting the department in half, virtually eliminating the vast synthetic-fuels program launched by the Carter Administration, Edwards argued in defense. In the midst of the battle, Stockman said contemptuously, "I went over to DOE the other day and here's a whole roomful of the same old bureaucrats I've been kicking around for the last five years—advising Edwards on why we couldn't do certain things on oil decontrol that I wanted to do." The relationship did not improve as the two men got to know each other better.
But Stockman felt only sympathy for Secretary of Agriculture John Block, an Illinois farmer. The budget cuts were hitting some of Agriculture's principal subsidy programs. A billion dollars would be cut from dairy-price supports. The Farmers Home Administration loans and grants were to be sharply curtailed. The low-interest financing for rural electric cooperatives and the Tennessee Valley Authority would be modified. In the early weeks of the new administration, the peanut growers and their congressional lobby had campaigned, as they did every year, to have the new secretary of agriculture raise the price-support level for peanuts. Stockman told Block he would have to refuse—for Stockman wanted to abolish the program. "I sympathize with Jack Block," Stockman said. "I forced him into a position that makes his life miserable over there. He's on the central team, he's not a departmental player, but the parochial politics of that department are fierce." Victories over farm lobbies could be won, Stockman believed, if he kept the issues separate—attacking each commodity program in turn, and undermining urban support by cutting the food and nutrition programs. "My strategy is to come in with a farm bill that's unacceptable to the farm guys so that the whole thing begins to splinter." An early test vote on milk-price supports seemed to confirm the strategy—the dairy farmers lobbied and lost.
THE only cabinet officer Stockman did not challenge was, of course, the secretary of defense. In the frantic preparation of the Reagan budget message, delivered in broad outline to Congress on February 18, the OMB review officers did not give even their usual scrutiny to the new budget projections from Defense. Reagan had promised to increase military spending by 7 percent a year, adjusted for inflation, and this pledge translated into the biggest peacetime arms build-up in the history of the republic—$1.6 trillion over the next five years, which would more than double the Pentagon's annual budget while domestic spending was shrinking. Stockman acknowledged that OMB had taken only a cursory glance at the new defense budget, but he was confident that later on, when things settled down a bit, he could go back and analyze it more carefully.
In late February, months before the defense budget became a subject of Cabinet debate, Stockman privately predicted that Defense Secretary Caspar Weinberger, himself a budget director during the Nixon years, would be an ally when he got around to cutting back military spending. "As soon as we get past this first phase in the process, I'm really going to go after the Pentagon. The whole question is blatant inefficiency, poor deployment of manpower, contracting idiocy, and, hell, I think that Cap's going to be a pretty good mark over there. He's not a tool of the military-industrial complex. I mean, he hasn't been steeped in its excuses and rationalizations and ideology for twenty years, and I think that he'll back off on a lot of this stuff, but you just can't challenge him head-on without your facts in line. And we're going to get our case in line and just force it through the presses."