Whacking the federal budget deficit by $14 billion this year was child’s play compared with the challenge it will present next year. The Gramm-Rudman deficit-reduction law mandates cuts of nearly $40 billion beginning next Sept. 30. Fiscal tricks and paper transfers are no match for that kind of real money.
Give President Bush’s budget director, Richard Darman, credit for fashioning a review system that requires agencies to make tough choices about their fiscal 1991 budgets. He has put them in competition for a limited pool of money set aside for high-priority programs, to be allocated ultimately by the President.
If agency chiefs choose to bid for the new money, they will have to expose their entire budgets to a White House review and risk coming out with less than they went in with. Also credit Darman for refusing to rule out a tax increase as a means of bridging the 1991 deficit gap if budget cuts cannot do it all.
There is, in fact, no chance that the White House is going to get Congress to cut the budget by $40 billion. And defense reductions prompted by the easing of East-West tensions might not yield enough savings in the first year to make a real dent in the deficit, even though long-range figures are impressive. Short-term forecasts run as high as $10 billion, but they are still very speculative.
If the White House is to come up with a real deficit-reduction program, it will have to venture into the sacred areas of entitlement programs and tax increases. The White House will try to find major savings among the domestic programs that Ronald Reagan targeted so often, in vain. But even severe cuts in a sampling of 25 domestic programs that have been jealously sheltered by Congress would yield only about $5 billion, including such sensitive items as postal subsidies, small business loans, student aid and mass transit assistance.
What might be done? A one-year freeze in cost-of-living adjustments, including Social Security payments, would save more than $10 billion. A defense freeze at current levels would net about $6 billion. A 5% surtax on personal and corporate income would produce $16 billion; a 5% energy-consumption tax, $13.5 billion, and a 12-cent-a-gallon gasoline tax, $12 billion. The real revenue raiser would be a new value-added tax on manufactured goods and services. Even if groceries, health care and home construction were exempted, each 1% of a VAT would raise nearly $15 billion.
But none of this seems likely to happen at this point. Few in Washington have been willing to run the political risk of touching Social Security or a value-added tax. If the White House and Congress are going to get serious about deficit reduction, however, they are going to have to plow some painful new ground soon.