PEACE BLESSING & BONUS : Dividends From Defense Reductions May Put Billions of Dollars in Play

Congress likes to have serious debates about things that don’t exist, like congressional ethics and human rights in China. This week, as Congress recon venes, the agenda-topping issue is the peace dividend. With the Cold War over, officials brim with ideas about the wonderful things we can do with money saved on defense in the 1990s.

The only problem is, no one knows how big the peace dividend is likely to be--or if there’s even going to be one. One budget analyst pointed out that defense spending has been declining for the past five years, so “to the extent there was a peace dividend, it’s already been spent.”

Congress acts like a bunch of poor relatives planning to spend the inheritance before the rich uncle is dead. Some say, “Spend it on urgent social needs.” Others say, “Use it to reduce the deficit.” And still others argue, “Give it back to the American people.” Meanwhile President George Bush asks, “What peace dividend?”

In a democracy, the people rule. Why not ask them what they think? That is what the Times Poll did last month. “If the federal government were to spend less on national defense,” the pollsters queried, “what do you think should be done with the extra money?” One-third said, “Reduce the federal budget deficit.” One-third said, “Increase funding for domestic programs.” And one-third said, “Lower taxes.”

In other words, the people, bless them, don’t have the foggiest idea.

In Washington, however, politicians have come up with four basic strategies: two from Texas Republicans, two from New York Democrats. Think of it as a Super Bowl, Cowboys versus Giants. Each team has developed a defensive strategy and an offensive strategy.

Bush is masterminding defensive strategy for the Cowboys. His plan is as follows: There isn’t going to be any peace dividend. If there were, all of it would have to go to deficit reduction.

The President announced this strategy just after the Malta summit last month: “I think it is premature to speak, as some are at home, about a peace dividend, taking a lot of money out of defense and putting it into other worthy causes.” He explained, “We are under a tremendous burden to get our total spending down in order to meet the Gramm-Rudman (deficit-reduction) targets.”

Funny how Bush has suddenly become a convert to deficit reduction. As recently as last summer, the Administration was planning to increase military spending by 25% over the next five years. And the deficit certainly didn’t interfere with Bush’s plan for a tax cut on capital gains.

Administration strategy has been to stage a preemptive strike on the military budget. When Congress adjourned in November--that is, before the Democrats could get to the defense budget--the Administration announced a plan to identify $180 billion in possible defense cuts over the next five years. “It’s ‘Hill Street Blues’ budgeting,” one defense specialist observed. “Do it to them before they do it to you.”

Bush and Defense Secretary Dick Cheney are proposing to rein in their unrealistically high spending projections over the next five years. Instead of adding $200 billion to the defense budget, we will only add $20 billion. That’s not exactly austerity. Once you adjust for inflation, you find that the Administration is proposing to cut the defense budget about 2.5% a year. Exactly what Congress has done every year since 1985. What’s different this year is that the Administration is proposing to do it first--thereby preempting any real peace dividend.

Senate Budget Committee Chairman Jim Sasser (D-Tenn.) wants to bring the defense budget down to what it was after the Vietnam War--about $215 billion in inflation-adjusted dollars instead of the current $300 billion. Many Democrats believe that arms-control talks with the Soviet Union could eventually lead to 50% cuts in nuclear weapons and conventional forces. Can the Democrats endorse these massive cuts without sounding “weak on defense,” as they usually do in presidential campaigns? Remember candidate Michael S. Dukakis in the tank?

The Democrats’ point man on defense is Gov. Mario M. Cuomo, a New York Giant. Cuomo believes Bush is vulnerable to his own logic. The President talks about urgent national problems like drug abuse and education, but refuses to devote any resources to solving them. In his inaugural address one year ago, Bush told the country, “My friends, we have work to do. There are the homeless, lost and roaming. There are children who have nothing, no love and no normalcy . . . . There is crime to be conquered.” Having acknowledged these problems, however, Bush went on to say, “We have more will than wallet.”

Cuomo congratulated the President for “candidly rejecting his predecessor’s narrow view of life in America.” Cuomo added, “Now he has to produce resources that deliver on his promises or concede to the nation that he is still an unconverted conservative who has simply tried to earn himself some cheap grace by reciting a little Democratic poetry.”

The big difference between January, 1990, and January, 1989, is the prospect of a peace dividend. We may finally have a little money in our wallet. As Rep. Barney Frank (D-Mass.) said last week, “Democrats can argue we are cutting the Strategic Defense Initiative and the B-2 (bomber) to fund George Bush’s campaign promises.”

Interviewed in his office last month, Cuomo assailed the logic of Bush’s position: “Mr. President, you’ve admitted that these are national concerns. How can you not pay for them?” Cuomo cross-examined the President like a trial lawyer-- which he is. He badgered the hypothetical defendant: “You mean you lied to us when you had that press conference and took credit for fighting drugs? You didn’t mean what you said at the education summit in Charlottesville? It was all a charade? It wasn’t really a national concern?”

Bush’s response might be that we still have more will than wallet. We have to be prudent. The world is still a dangerous place; drastic defense cuts would be risky.

What about Bush’s pledge of no new taxes? Cuomo went back on the attack, “You’re for taxes. You and Reagan raised taxes 14 times when you said you were against them. Did you ever once stand up and say to a governor, ‘Don’t raise your taxes, I’m against tax increases?’ The tax argument is phony.”

How about the argument that any money we save on the military has to be used for deficit-reduction--that it would be fiscally irresponsible to spend the peace dividend. Counselor Cuomo demanded to know, “How, all of a sudden now that you have this money, does the deficit become all that important? It wasn’t so important when you asked for a capital-gains tax cut. It wasn’t so important when you had to deal with Hurricane Hugo or the earthquake in California. It wasn’t so important when you had to bail out the savings and loans. Is there money for banks but not babies?”

Here, Perry Mason--Perry Cuomo?--moves in for the kill. “If Bush doesn’t put in enough money, you call him a hypocrite. If he puts in enough, he’s a Democrat. Then you say to the voters, ‘If what you want is a Democrat, you may as well have a real one.”’

This is where the Texas Cowboys go on the offensive. “I don’t think the benefits from winning the Cold War should go to the government,” Sen. Phil Gramm (R-Tex.) has said. He thinks the benefits should go to the American people because, after all, “They are the ones who won the Cold War.”

What Gramm and other conservatives want is a new round of tax cuts. House Minority Whip Newt Gingrich (R-Ga.) says one third of the peace dividend should be devoted to tax cuts. Rep. Vin Weber (R.-Minn.) wants the top corporate tax rate cut to 30% and the top individual tax rate cut to 20%.

What about the social deficit Bush seems so concerned about? The conservatives’ answer: Don’t start new government spending programs. Instead, use tax incentives. Give people tax credits for child-care expenses. Give tax breaks to businesses to encourage investment in inner-city “enterprise zones.” Create a $5,000-per-person tax-free savings plan. And most of all, pass the capital-gains tax cut to encourage investment.

The Democrats have an answer to this. They say, “You want tax cuts? We’ll give you tax cuts. How about cutting taxes for the poor and the middle class instead of the rich?” Sen. Daniel Patrick Moynihan, New York’s hard-hitting Giant, proposes cutting the Social Security tax, a highly regressive tax that has more than doubled since 1980. Moynihan’s proposal has electrified the political debate in Washington, in part because conservative Republicans are finding it impossible to resist a tax cut--even a Democratic tax cut.

Last week, Bush accused Moynihan of a hidden agenda. Since the government uses the Social Security surplus to mask the true size of the deficit, if we eliminate the surplus we’ll have a deficit crisis. What then? “It’s an effort to get me to raise taxes on the American people by the charade of cutting them,” Bush said on Thursday.

Moynihan has not said anything about a tax increase, but he has suggested that deep defense cuts and defeat or modification of Bush’s capital-gains tax cut are high on his agenda. In other words, a deficit crisis might be good for Democrats. It would force the Administration to practice “truth in budgeting.”

But the Democrats have another problem. When push comes to shove, will they be willing to make cuts that may affect jobs in their own districts? Democrats have a long history of putting pork-barrel politics above ideology. Swords into plowshares is one thing. Pork into plowshares is something else.