Rostenkowski Proposes Plan to Cut Deficit in 4 Years : Congress: The package includes some tax hikes and a freeze on most federal domestic spending. The Pentagon's budget would be reduced by 3%.

TIMES STAFF WRITER

The chairman of the House tax-writing panel Sunday unveiled a package of spending freezes, tax hikes and modest defense cuts that he said would wipe out the federal deficit within four years.

Rep. Dan Rostenkowski (D-Ill.), who chairs the Ways and Means Committee, said that the combination of a freeze on most federal spending, a 3% annual cut in the military budget and increased user taxes on items such as gasoline and cigarettes could shrink the $166-billion budget deficit to zero by 1994.

Rostenkowski said he feared that congressional Democrats and the White House would push for a new wave of tax-cutting and that he wants to turn the political spotlight back on the nation's huge budget deficit.

"What we've got to do is explain to the American people that there is no free lunch," Rostenkowski said Sunday on CBS-TV's "Face the Nation."

Some Democrats have become enamored with Sen. Daniel Patrick Moynihan's (D-N.Y.) proposal to cut the Social Security taxes paid by workers, while President Bush wants a cut in the capital gains tax paid by investors. At the same time, both Democrats and Republicans say they want to spend more to help the emerging democracies in Eastern Europe and Central America.

Rostenkowski said these proposals ignore the arithmetic of the deficit.

"I want as much as anybody at 1600 Pennsylvania Ave. to have an education President, to have a caring President that's worried about child care, to have a President that's worried about drugs," he said. "But I want to spend the money to do it. And I don't think we can do it any longer with blue smoke and mirrors and with cooking numbers with respect to the deficit."

The specifics of Rostenkowski's proposal, outlined in an opinion page article in the Washington Post, include:

--Cut the military budget by 3% below inflation. This would save $10 billion in 1991 and $40 billion per year by 1994.

--Freeze all domestic spending for one year, except for programs serving the poor. This would save $5.4 billion next year.

--Freeze cost-of-living increases for one year, including those for Social Security recipients. This would save $9 billion next year and reduce spending in the succeeding years by about $12 billion.

--Eliminate the "tax bubble" so that the very wealthy pay the same top tax rate of 33% now paid by families whose taxable income is between $78,000 and $185,000. Under the current system, those with higher incomes pay a top rate of 28%. Elimination of this anomaly would bring the government an extra $4 billion next year and nearly $11 billion by 1994.

--Freeze for one year the inflation adjustments in the tax code. This would have a "modest impact" on individual taxpayers, but it would yield the government $50 billion over five years.

--Increase taxes on "pollutants," including gasoline and cigarettes. Rostenkowski said he favored a 20-cent-per-gallon increase in the gas tax. Together, these new taxes would raise an extra $20 billion per year.

--Spend less for interest on the deficit. Simply by cutting its borrowing, the government could save $62 billion in interest payments over five years, according to the proposal.

Rostenkowski said he had discussed his proposal with other Democrats, but had not yet sought their support or that of President Bush. When asked how congressional Democrats reacted to the proposed one-year freeze in Social Security benefits, he replied: "In most instances, I'd get a scratched head, and they'd say: 'You sure you know what you're doing?' "

The Ways and Means Committee chairman said he is especially worried about tax cuts which would exacerbate the deficit.

"I'm not for any tax decreases," he said. "I'm for increasing taxes because I think that, fundamentally, is what has to be done."

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