No New Taxes Means More Borrowing

Crises, while they sometimes call forth strength, can also reveal weaknesses in a society--as for example, the government’s difficulty with California earthquake relief.

The story for now has a happy ending--relief funds are on their way to the Bay Area because President Bush signed the law that will allow the Treasury to borrow the money needed to shore up roads and bridges and to care for people living in tents.

The Treasury must borrow, of course, because the federal government is already way over budget. In fact, there was some dithering over relief while the Administration and Congress tried to devise a way to raise the money without further violating Gramm-Rudman deficit limits.

But in the end, it was decided that it had to be in the budget, so the $3.5-billion relief program will add to the $100-billion government deficit. “It will add to the deficit. Is that preferable to a tax increase? Yes,” is how White House Press Secretary Marlin Fitzwater stated the policy.

On earthquake relief as on other matters, said a White House aide, “the President’s position is clear: No new taxes.”

Which sounds like a battle cry, but is really a cop-out. Because no new taxes means more loans from abroad to fund the deficit. Last year foreign investors in U.S. Treasury bonds and bills loaned the U.S. government about $48 billion--roughly 40% of the deficit (with Japan, the leading lender, accounting for roughly $24 billion). Foreign investors will fund relief for victims of the earthquake and Hurricane Hugo in South Carolina. The money has to come from somewhere.

Which raises a question: If no new taxes is merely an excuse for borrowing--and creating new interest payments--are we kidding ourselves? And if so, are we paying a price?

Increasingly, people understand the answer is yes. But false economy goes far beyond Washington. According to the Government Finance Officers Assn., a 12,000-member organization of state, county and municipal treasurers and budget directors, America faces an overdue bill for infrastructure repair amounting to $100 billion. Infrastructure is a big word meaning roads and water mains, bridges and tunnels, sewers and freeways.

And the bill for their upkeep is overdue because, like railroad companies years ago, the cities have deferred maintenance. When voters turn down bond issues and new taxes, explains director Jeffrey Esser, of the Government Finance Officers, you use available funds for schools and police and fire departments and cut maintenance to stay within budget. “It’s something you can get away with--for a while.”

But now neglect is catching up. In Chicago, Transit Authority trains must slow to six miles an hour in the Loop because the track system can’t take the vibrations of greater speed. Water mains are corroded in New York, and there are potholes on superhighways all over America.

What is being done? Some intelligent solutions--voters approved more public works initiatives in 1988 than in previous years. But state legislatures still prefer the easy way out. Lotteries and other public gambling schemes have become a mania--32 states have lotteries, Oregon has legal poker machines, Iowa has riverboat casino gambling. Lotteries alone raise almost $20 billion.

But it’s a wasteful way to raise public money. The state keeps only 37% of gambling proceeds. Taxes raise money more efficiently--and do it fairly. The odds on state lotteries, say professional gamblers, are a rip-off--the bettor risks too much for too little potential reward. And gambling takes proportionately more from the poor than the better-off. A voluntary activity, gambling might be all right if it were only to raise money for extras. But when the state makes suckers of its citizens to fund schools and safe water, it’s an injustice.

What can be done? We can pay our way. If they had the political will, the President and Congress could have funded earthquake relief easily with a temporary 10-cent-a-gallon gasoline tax, which would have brought in $10 billion in one year.

For the long-term, tax experts are thinking of a super-sales tax that would exempt all savings, tax all spending and encourage business investment. The intent, says John Shoven, head of economics at Stanford University, would be to lower the cost of capital for U.S. industry.

Still, you say, the economy is puttering along and inflation is low. Do we really pay a price for the budget deficit? The answer has just been supplied by the Federal Reserve, which reports annually on America’s wealth--the value of all its homes, goods and businesses, minus how much is owed on them. The new Fed survey, taking a 10-year look, shows that America’s wealth increased more slowly in the 1980s than in any previous decade, because of the buildup of public debt--which all Americans must now work to pay off.

Maybe in the next decade we’ll stop kidding ourselves with phrases like “No new taxes” and return to an earlier American boast: “We pay our way.”