Cut and Tax

A recipe to close the deficit

Trying to close the federal budget deficit of nearly $200 billion is a bit like making the perfect spaghetti sauce. There are hundreds of different recipes because individual cooks have their own special tastes. Congressional Democrats want to trim the deficit primarily by reducing military spending and raising taxes, while the White House and many Republicans would prefer to cut social programs.

Now the Brookings Institution, a respected Washington research organization, has put forward a bold budget-cutting recipe that will be tasty to no one but may show the way toward a compromise. Published last week, Economic Choices 1984 (Brookings; $8.95) presents a strategy that combines cuts in military and domestic spending with tax hikes. The 171-page book is the work of a team of ten economists headed by Alice Rivlin, former director of the Congressional Budget Office.

Unless Congress takes action, the budget deficit is expected to rise inexorably from $197 billion next year to $308 billion by 1989. The Brookings proposal would pare the deficit to $145 billion next year and push it down to only $20 billion by the end of the decade. Carefully balanced, the plan calls for spending reductions of $92 billion, equally divided between defense and domestic cuts, and tax increases of $108 billion in 1989. Lower interest costs on the national debt would save another $88 billion that year.

The Brookings economists offer detailed suggestions for meeting those goals. On the domestic spending side, the book advocates a one-year freeze on all social programs except those intended to help the poor. Beyond that, the proposal calls for long-term spending restraints concentrated in four major areas: Social Security, Medicare, federal pensions and farm benefits. The economists suggest, for example, that the initial level of Social Security benefits that people receive when they retire could be reduced by 5%. In addition, the book asserts that the rate of growth in payments that hospitals receive for each Medicare patient should be slashed by more than two-thirds, after adjustment for inflation. For all domestic programs, the target would be savings of $46 billion by 1989.

The book argues that many of the proposed weapons systems in the Reagan military buildup are redundant. The Pentagon does not need the land-based MX missile, say the Brookings experts, when it also plans to have the submarine-based Trident D-5 aimed at Soviet targets. Also high on the hit list are the B-1B bomber, the AH-64 attack helicopter and the F-15 fighter. By Brookings estimates, the Government could carve $46 billion out of the defense budget by 1989 without threatening national security at all.

Even with big spending cuts, however, revenue increases will be needed. The Brookings economists think Congress should aim to boost taxes by $23 billion in 1985. Much of that could come from eliminating many income tax deductions and closing loopholes. Congress could, for example, raise $3.9 billion by taxing employees on employer contributions to health plans and $600 million by reducing business entertainment deductions by 50%. The Brookings book lists 23 such-steps that could bring in $30 billion, but suggests that a politically realistic target might be $15 billion. The additional $8 billion needed to meet the $23 billion revenue goal could be raised by imposing a temporary 2% income tax surcharge.