Democrats See Path to Leverage on Taxes

The era of fiscal paralysis will either end next year or the federal budget will become a complete fraud.

Congress will soon put the final touches on the 1990 fiscal budget, which begins Oct. 1. The 1990 budget is likely to be the last one in which Congress and the Administration can meet budget targets of the Gramm-Rudman law through a combination of gimmicks, nickle-and-dime revenue raisers and relatively painless spending cuts.

The next budget year--1991--is supposed to be within $100 billion of balance, according to the Gramm-Rudman law. But most experts project that the 1991 deficit will be as much as $160 billion. And that’s assuming no recession.

A $60-billion gap is serious money, even in Washington. The Gramm-Rudman law provides that if the budget misses its targets, spending shall be automatically cut, half from military outlays and half from domestic programs.

Until now, the Reagan and Bush Administrations have played a very effective game of chicken with the Democratic Congress. In budget battles of recent years, Congress has always blinked first and gone along with something close to the Administration blueprint, rather than risk triggering automatic Gramm-Rudman cuts.

Presidents Reagan and Bush have been forced to take smaller military outlays than they wanted, but they have been able to set spending priorities and keep the pledge of no new taxes. Democrats willing to risk triggering automatic cuts have been tactically isolated within their own party.

Next year, this scenario changes--for three reasons.

First, a $60-billion gap is too big to make up through fudging.

Second, President Bush, unlike President Reagan, wants to spend some money. There is broad public support for more spending on drug eradication, environmental cleanup, education, not to mention money that will be spent one way or another on AIDS.

And third, there is a growing sentiment in Democratic ranks that it’s time to call the Administration’s bluff.

The present budget paralysis was created in 1981, when the original Reagan “supply-side” tax cut failed to generate the revenues it promised. Instead, it locked the government into a cycle of permanent deficits.

Cynics assumed that starving government was the real goal all along, and a number of Reagan’s strategists have admitted as much. Whether or not it was Reagan’s goal, the tactic has worked brilliantly. For almost a decade, Democrats have chafed under a steadily tightening fiscal noose.

Until now, Democrats in Congress have resisted playing serious chicken with the budget. They have not been able to agree on tactics. They have been intimidated by the Administration’s threat to paint them as the tax-and-spend party. And they have assumed that letting the Gramm-Rudman formula substitute for hard legislative work would be seen as a congressional failure.

But all of this is changing. It is beginning to occur to prominent Democrats that the threat of automatic Gramm-Rudman cuts of $30 billion from defense and $30 billion from domestic spending would force George Bush to rescind his no-new-taxes pledge.

The alternative is either to give up on issues that Bush really cares about, or to make recent budget subterfuges universal and simply place every new spending program off budget and take the government deeper into debt.

That is what the Administration did with the savings-and-loan bailout, and that is what drug czar William J. Bennett hopes to do to finance his war on drugs.

But two can play this game. If we can have plentiful off-budget spending to bail out banks, or to crack down on crack, then why not off-budget spending for housing, or child care, or universal health insurance?

The Democrats would be far better advised to insist on real budget discipline by letting the Gramm-Rudman law do its work. They should offer their own set of taxing and spending priorities, with necessary new spending financed by restoring a progressive tax code. Raising the top tax rate to its 1987 level of 38% would do most of the job, and it would not touch the pocketbooks of most taxpayers.

If the Bush Administration failed to meet Congress halfway, then reducing defense spending by $30 billion and living with another $30 billion in domestic cuts would become George Bush’s problem. Being an education-environment-drug-eradicator President would be out of the question. And the generals would suddenly become the Democrats’ allies, lobbying for taxes rather than cuts in defense spending.

The voters, I suspect, would like to see the budget paralysis end, even at the price of some new taxes. And they might enjoy seeing the Democrats get up off the mat.