Nobody Loves It, Everybody Needs It : Budget deal should be approved; Fed needs to ease rates

How objectionable is this deal?

What needs to be understood is that just about the only incontrovertibly unacceptable accord on the federal budget would have been no deal at all. This would have sent a signal to the international financial markets that Congress was unable to produce even a budget, that the U.S. economic house was out of control and that Washington could not rise to the political challenge of crafting a compromise amid (a) the looming recession and (b) the tense and dangerous international crisis in the Persian Gulf. It would have sent a message of political bankruptcy as well as impending economic crisis.

This nation has the resources to succeed--even America’s worst enemies know this. What has been at issue is the question of political will and skill. The agreement reached by President Bush and congressional negotiators goes a considerable distance toward quieting the worst fears about our national political process.

It tooks months of jockeying and posturing to produce this statement of U.S. financial intent. It proposes to reduce the deficit by $40 billion next year, as the first phase in the five-year reduction plan, and thus to obviate the mandated Gramm-Rudman cut--a terrifying $85 billion, across-the-board demolition job.

To achieve the agreement, both sides had to give more than they got. President Bush had to cave in to Democrats on his no-new-taxes-pledge--the budget proposes $134 billion in higher taxes over the five-year deficit-reduction period--and kiss the Republicans’ pet proposal to reduce capital-gains taxes good-by. The Democrats were defeated in the effort to reduce the inequity caused by the lower effective income-tax rates enjoyed by the highest-income taxpayers, and even now still are steaming over the proposed changes in Medicare costs and reimbursements (see the complaint of L. A. Rep. Henry A. Waxman on the opposite page).

Thus, if there is any beauty at all in this deal, it lies precisely in its beastliness. Everyone will find things in it they don’t like. The debate this week in Congress is certain to be bitter. Very considerable and creditable objections are sure to be raised about specific aspects of it. The pain on Medicare users and providers is especially hurtful. The higher users taxes on cigarettes and liquor are sure to hit lower-income Americans harder than anyone else. The rich are unlikely to be driven to homeless shelters by the new luxury tax on items like cars, yachts and furs. California, with a new federal gas tax now to be added on top of the new additional state gas tax approved by voters in June, will really feel it at the pumps.

Don’t lose sight of the big picture, however. Overall economic health should be improved by this significant first step toward serious budget reduction. On Monday, the markets reacted optimistically. Investors hoped that the Federal Reserve would soon take action to lower interest rates, as it now should. A slight easing of credit might go a long way toward cushioning the expected economic turbulence to come, without firing up the inflationary furnace. By week’s end, a majority of Democrats and Republicans in Congress need to see the wisdom of putting aside their individual concerns and voting for the larger national interest.

If All Goes According to Plan Deficit projections in billions of dollars 1991: -$253.6 1995: $68.3 Source: Office of Management and Budget