Share this story
Close X
Switch to Desktop Site

Reshape the budget. . .

President Reagan's initiative on the federal budget has decidedly passed to the US Congress. There is general recognition, on both sides of the political aisle, that the nation cannot tolerate the high future deficits projected by economists and that something must be done to bring them under control. For fiscal year 1983 the deficit will be on the order of $210 billion - even larger than earlier forecast by the White House.

With recession scarcely behind, little can be done for the short term to rectify this situation. But, unless the lawmakers act boldly and set sound policies for the future, the deficits could run to about $255 billion in 1985 and to almost $300 billion in 1987 and 1988. The dangers are self-evident. If these deficits are not sharply cut, the national debt could more than double in six years. The demands this would place on Treasury borrowing could either ignite inflation or push interest rates higher, thereby alarming business investors and causing further harm to the economy.

About these ads

Inasmuch as moderate Republicans as well as Democrats now agree that reductions in domestic programs have reached their limit, there are only two ways to resolve the problem: cut defense spending and/or raise revenue. Both need to be done:

* The President has called for a 10 percent real rise in military spending for fiscal 1984. The House has proposed 5 percent and the Senate now seems on the brink of agreeing to 7 1/2 percent. Perhaps a compromise will settle on 6 percent or so. It should be understood by the public that this in no way would impair national security or halt modernization of United States military forces. It would simply slow the pace of buildup - a pace which many defense experts and economists maintain is too high and could in itself distort economic recovery.

* Over the short term the Congress must necessarily tread warily on the revenue side of the budget. The House proposal to raise $30 billion in revenue in fiscal 1984 is dubious, as this would virtually wipe out the 10 percent tax rate drop scheduled for July 1. That could be a risky move. It would seem more sensible to keep tax increases modest this year, and give the tax cut a chance to provide impetus to a still-fragile recovery.

* In the longer term, substantial increases in revenue will be required and the time to begin reform is now. Encouragingly, bipartisan support is growing for changing the present contradictory system under which the more an individual saves the more he is taxed (interest and dividends are taxable) and the more he spends the less he is taxed (interest on consumer debt is deductible) - a system that led to the nation's poor savings rate and therefore shrinkage of investment capital. In other words, it would be more logical to shift to more taxes on consumption rather than taxes on saving - through, say, a value added tax, a straight consumer tax, or some combination of taxation. The public would then have incentive to save.

* It is not too late to capture a few billions more annually by keeping the law on withholding of interest and dividend income. Under the pressure of a massive and misleading campaign by the bank lobby, the Senate has postponed implementation of the law. But the House still can act in the public interest and preserve a provision that will catch cheaters and ensure integrity of the tax system.

* Support seems to be building for repeal or postponement of indexation of tax rates for inflation as of 1985, a device put into the law to keep taxes from rising automatically with inflation. Any change ought to be weighed carefully. The reform is a good one, for ''bracket creep'' is in effect an unlegislated tax increase and encourages the government to welcome inflation. Although inflation is not a problem at the moment, the principle is sound and therefore worth preserving.

The Congress has its work cut out for it. As the Republican-dominated Senate hammers out a consensus budget proposal and proceeds into a huddle with the House, which has already passed a budget, it can be hoped the urgency of dealing with those growing structural deficits - and fostering sturdy economic growth - will remain dominant in legislators' minds.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.