Consensus on the Future

A distinguished group of business, labor and university leaders who make up the Council on Competitiveness has come up with some useful ideas on how the United States can tame the federal deficit and protect the nation’s competitive position in the world economy. Their report should be priority reading for President-elect George Bush’s transition team.

Tax increases cannot be excluded from the solution, they argue, but they propose a variety of other approaches initially, with new taxes only in the likely circumstance that other remedies fall short of accomplishing all that needs to be done.

The first thing to be done is to agree on a $120 billion, four-year reduction in the federal budget. It would be achieved by imposing caps on each of the three principal categories of the budget--that is, defense, discretionary non-defense programs, and entitlements including Medicare, Social Security, federal retirement and farm-price-support programs.

We are particularly impressed by the proposals for Social Security and related programs. They respect the basic integrity of the system, avoiding the kinds of bruising changes that some people have talked about while shifting to policies increasing the share to be borne by higher-income beneficiaries. On Social Security, income taxes would be increased on benefits for higher-income recipients. On Medicare, higher-income recipients would also pay a proportionately higher premium, as they will pay on the expansion of the program that is being added on Jan. 1. But recipients of means-tested federal programs, including Medicaid (Medi-Cal in California) and food stamps, would be protected from reductions. And the Social Security trust fund would no longer be used to screen the magnitude of the federal budget deficit--an important step in guarding against any move by Congress to raid the fund.

The short-term deficit-reduction effort would include revenue-raising options.

“As much as we’d rather not face the prospect of increased taxes, we are convinced that financing federal spending through taxes is greatly preferable to deficit financing, which is far more damaging and insidious,” according to John Ong, the chairman of B. F. Goodrich Co. and a member of the executive committee of the Council on Competitiveness.

The tax options cited by the council include increased cigarette and alcohol excise taxes, a 20-cent-a-gallon motor-fuels tax, limitations on tax deductions allowed under the 1986 Tax Reform Act, institution of a 33% tax bracket for families with an income above $79,500, and a 5% temporary income-tax surcharge on individual incomes, exempting long-term capital gains.

These short-term remedies would be followed by a reorientation of national fiscal policy directly related to the nation’s competitiveness. This would include a bigger federal role in science and technology, a bigger commitment to education and job training--including strengthening mathematics and science instruction--and a bigger commitment to the maintenance of the infrastructure--including airports, bridges, roads and waterways--helped by allocating portions of the proposed motor-fuels tax and earmarked portions of the highway trust fund.

“The council encourages policy-makers to consider restructuring the tax code to remove biases that favor consumption and discourage private saving and investment,” the report says.

The council chairman is John A. Young, chief executive officer of Hewlett-Packard. The vice chairmen are Paul E. Gray, president of the Massachusetts Institute of Technology; Ruben F. Mettler, retiring chairman and chief executive officer of TRW, and Howard D. Samuel, president of the AFL-CIO Industrial Union Department. They and the other equally celebrated council members are worth listening to at a time when the individual prosperity of so many Americans tends to distract the citizens from the economic dangers facing the nation.