THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Thursday, December 29, 1994 TAG: 9412280022
SECTION: FRONT PAGE: A12 EDITION: FINAL
TYPE: Editorial
SERIES: Issues facing the 104th Congress
LENGTH: Medium: 66 lines
This is the third in a series of editorials examining issues that will face the 104th Congress.
The essential business of the federal government is raising money through taxes and spending it on programs deemed necessary by Congress. That means budget and taxes are inescapably at the heart of the agenda for the new Republican majority.
The Contract With America stipulates big tax cuts. Seniors would get breaks through reducing the percentage of benefits that can be taxed and elimination of a penalty that affects employed seniors in their late '60s. The marriage penalty would be phased out. Families would receive a tax credit for each child.
Democrats have also entered he bidding war to grant tax relief to the middle class, differing with Republicans on where to cut off the benefit and proposing exemptions for education. All of those are reasonable reforms.
A huge capital-gains tax cut would halve the rate and index for inflation. There are cogent economic and fairness arguments for capital-gains reform, particularly indexing to cease taxing phantom gains that simply reflect inflation. A depreciation scheme that would permit many corporations to avoid taxation is considerably more problematic.
The essential issue in cutting taxes is how to pay for it. Arguments that tax cuts will spur enough growth to pay for themselves are wishful thinking. No cuts should be undertaken until corresponding cuts in spending are identified. Ideally, the two should be yoked together.
Even Newt Gingrich admits that the loss in revenue from proposed cuts would increase the annual budget deficit to the $300 billion range. And budget rules require cuts in spending to match any cuts in tax receipts.
The Contract demands a vote on a balanced-budget amendment, but the public has been promised more by the Republicans - budgets capable of achieving balance by 2002. They will be expected to make good.
So, what's the plan?
The Clinton administration has identified $72 billion in cuts needed to pay for roughly $60 billion in tax breaks. Republican leaders have put Social Security off limits and have promised to increase defense spending. That leaves them with less than $1 trillion in other entitlements and discretionary spending out of which to cut $300 billion.
A cut of over 25 percent in those programs would be needed to achieve balance. Is the American public really ready to cut by 25 percent Medicare, welfare and veterans programs, federal spending on education and research, the FBI, courts, prisons, Parks, drug testing, meat inspection, highways and so on?
Perhaps, but don't count on it. The Republicans now face the paradox that has dogged budget cutters for years. The public wants lower taxes without sacrificing entitlements or services.
So far, the new Republican majority has not identified $300 billion in specific spending cuts. It has promised to cut spending before enacting tax cuts that would increase the deficit to $300 billion. It must do so, otherwise the balanced-budget talk is hot air and the real program is another round of borrow and spend. The country can't afford that. by CNB