Overdue Budget Deal

GOOD things are worth waiting for, it is sometimes said, and that applies to the deficit-reduction deal that Congress has reached. It took five months of negotiations. But the package that has emerged has considerable merit. It is an improvement over the earlier package negotiated by congressional leaders and the Bush administration and definitely better and fairer than what President Bush originally proposed. First, the package does actually reduce the deficit from what it would otherwise be by almost $500 billion over five years. That means the federal government will need to borrow less, leaving more capital for private investment at lower interest rates. This should boost the nation's growth rate slightly over the decade.

Second, the deficit reduction is mostly real, not just smoke and mirrors. It includes $137 billion in tax hikes over five years. There are sizable spending cuts, particularly in defense. One spending ``cut'' - lower interest costs on the federal deficit - may not be so large as reckoned. But predicting interest rates is not easy.

Third, the tax hikes shift the burden a little onto the well-to-do. At present, the national tax system (federal, state, local) takes about the same proportion of income from the middle class as from the rich. The compromise sets the top tax rate at 31 percent of taxable income rather than 28 percent. It also trims tax deductions for the well-to-do.

President Bush finally did get a tax rate on capital gains that is lower than the top marginal income tax rate. However, the difference is so slight (28 percent vs. 31 percent) that it probably won't tempt many tax advisers to seek tax dodges that convert ordinary income into capital gains.

Nor should the tax package worsen today's economy slump by any measurable amount. In an economy producing goods and services at a $5.4 trillion annual rate, a reduction in the current fiscal year's deficit of about $40 billion will have only a tiny influence on the business cycle. The shift is less than 1 percent.

Many citizens have been highly critical of the political hassle and lengthy delays in reaching a budget package. A deal should have been reached a month ago. Nonetheless, there are extenuating circumstances. This is the biggest deficit reduction package ever. It will influence taxes and spending for years. It is important. And the division of powers imbedded in the Constitution virtually guarantees a lengthy process of sorting out differences, particularly in an age where bargaining has been turned into a pseudo-scientific process involving waiting until the last minute for a deal.