Gramm Proposes Cut in Taxes Funded by Pentagon Rollback

Launching a debate on how to spend an expected peace dividend, a Republican senator Monday proposed reducing Pentagon spending by 5% to pay for a tax cut that would amount to $466 for a middle-income family of four.

Sen. Phil Gramm (R-Tex.) said the Administration is considering his plan. He predicted that part of it would be incorporated into President Bush’s proposal to stimulate the economy, which Bush will unveil in his State of the Union address Jan. 28.

In a reversal of his previous position, the President said during a visit to Singapore last week that he would support military spending cuts if they would put more money into taxpayers’ pockets.

Gramm said he opposes diverting Pentagon savings to domestic programs, as Democratic congressional leaders have advocated.

“If we don’t give the money back in the form of tax cuts, the government will squander it,” Gramm, the chairman of the Senate Republican Campaign Committee, told a press conference.

Key Democrats in the House and Senate have said that any savings from cuts in the Pentagon budget should be used to increase spending for education, health care and other domestic needs.

Gramm recommended a one-time increase of $416 in the personal exemption--which is $2,150 for 1991 tax returns. That, he said, would produce a tax savings of $466 for a family of four with an income of slightly more than $35,000 a year, or slightly more than $115 per person.

Under his proposal, future reductions in defense spending would be split equally between reducing the federal deficit--currently estimated at $354 billion--and raising the personal exemption to reduce income taxes.

His plan is sure to encounter resistance from leaders of the Democratic majority in the Senate.

Sen. Lloyd Bentsen (D-Tex.), chairman of the Senate Finance Committee, has proposed using the savings from defense cuts to provide a tax credit of up to $300 to families with children under 19.

A House proposal that has the backing of the Democratic leadership would cut Social Security taxes up to $200 per person, or $400 per couple, depending on income levels. It would be paid for by raising taxes on those in the top income brackets.

Gramm, co-author of the predecessor to the 1990 budget agreement, which capped federal spending in an effort to reduce the deficit, said that law would have to be revised to permit converting Pentagon savings into tax reductions.