Is a Flawed Plan Better Than No Plan? Yes : But significant improvements in Clinton budget are needed

Hold the President’s proposed taxes hostage to deeper spending cuts? That will be the sinister temptation in Washington as President Clinton and Congress begin the budget dance. If political grandstanding unravels Clinton’s deficit reduction plan into meaningless fluff (such as no new taxes, few real spending cuts), interest rates could zoom and the fragile recovery could stall.

To avoid this, cuts and taxes should be taken up simultaneously. Congress has committed to advance, from mid-April to late March, the date when it will vote on the budget resolution that sets overall targets for spending, taxes and the deficit. That’s OK.

Clinton delivered a far-from-perfect but credible deficit reduction plan. It seeks higher taxes, spending cuts, a stimulus program and investment in new programs. The depth and breadth of the proposed cuts were disappointing. The timing of the tax increases--to hit before most of the cuts--is more worrisome than the hikes themselves.

Clinton’s plan has been attacked for the meekness of its spending cuts. They are decidedly heavy on “soft” savings--”better management” and “streamlining”--that often amount to little more than bureaucratic smoke. With beefed-up spending cuts, the plan should widen its support both inside and outside Washington. One recent poll shows that most Americans like the Clinton plan but that 58% of them say he did not go far enough in slashing spending.

The President has said he will find more to whack but has delivered nothing specific to date. He seems to be in no rush, having assigned Vice President Al Gore to head a six-month effort to find ways to cut government waste. Republicans meanwhile are trying to come up with their own hit list. And, of course, Mr. 800--Ross Perot--is hammering away at Congress for more cuts.

Clinton’s plan is structured so that tax increases would take effect in the early years while the spending cuts would not kick in in a big way until 1997. For many reasons, widespread skepticism has arisen over whether the spending cuts would ever materialize; for starters, Clinton has proposed numerous new and costly programs--a national police corps, promotion of high technology, national service for college students and summer jobs for youths. Therefore, more cuts need to be “front-ended,” not “back-ended.”

The Administration is also being criticized for the liberties it took in its budgetary definitions and accounting. Expanded taxes on Social Security recipients--those couples earning $32,000 or more and individuals earning $25,000--are listed as spending cuts, a throwback to a novel accounting practice used in 1983. The Administration’s $30,000 threshold for no new taxes may actually be $20,000 because non-cash income--including certain fringe benefits and even the “imputed rental value” of the family home--was included to come up with the $30,000 figure. And Clinton decided to leave out the $15 billion to $25 billion needed, but not yet authorized, for the savings and loan bailout. That’s some kind of omission.

Debate on the tax front has been more muted, mostly because the wealthiest taxpayers would take the hardest hit, and because strong arguments can be made for the $71-billion energy tax. But phasing in the taxes over a longer period than proposed would be less disruptive.

Clinton says he is willing to entertain more cuts and amend his plan. He is willing to deal. Congress must take the same attitude. Voters and the markets both like--and need--deficit reduction. Let’s get to work.