THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Thursday, March 16, 1995 TAG: 9503160017
SECTION: FRONT PAGE: A14 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 85 lines
Republican revolutionaries have spent their first 65 days writing new rules for the House, deflating Democrats and trying to make life less pleasant for regulators and trial lawyers. But now they arrive at the crux of the matter: money.
The revolution promised to cut taxes and cut spending. ``We have kept our word, '' said Ways and Means Chairman Bill Archer, unveiling his tax plan. ``Taxes will be cut. Relief is on the way.''
If enacted, who will be relieved? To a considerable extent, the prosperous. The legislation sticks close to the provisions of the Contract With America. It proposes a $500-per-child tax break, though families too poor to owe taxes won't benefit. Lower capital-gains taxes are also a substantial part of the deal.
Lesser provisions include increased write-offs for new business equipment, income-tax credits for those adopting a child or caring for elderly parents and liberalized rules for IRAs.
The cost in lost revenues is estimated at $189 billion over five years, $700 billion over 10 years. Ordinarily, the promise of tax cuts would be a sure winner politically. But since the federal government spends $1 trillion more than it takes in every five years, tax cuts of that magnitude could be surprisingly hard to sell.
The House may pass Archer's package just to comply with the Contract, but many House Republicans are leery of the cost and powerful Senate Republicans (including Archer's tax-writing counterpart, Sen. Bob Packwood) favor balancing the budget first, cutting taxes a distant second.
Indeed, a groundswell for fiscal responsibility that began with the 1992 presidential campaigns of Paul Tsongas and Ross Perot may be taking hold when Republicans begin to worry about the wisdom of cutting taxes, Democrats offer proposals for spending cuts and members of both parties admit entitlements will have to be put on the table.
A report by Republican Sen. Judd Gregg proposes nearly $500 billion in spending cuts over five years, largely through limits on entitlements.
Annual growth of Medicare spending would be cut by 25 percent, essentially by giving the elderly incentives to join managed-care plans. Projected five-year savings: $120 billion.
Block grants to the states for Medicaid and welfare would be designed to slow the growth in spending and restrict eligibility. Savings: $89 billion.
Federal retirees, civilian and military, would receive cost-of-living adjustments no greater than those for Social Security recipients, and a change in the way COLAs are calculated would slow the growth in Social Security payouts. Savings: $81 billion.
Payments to farmers, veterans and the unemployed would also be reduced for savings of $80 billion.
That sounds like pretty stern stuff, but the deficit picture is so bleak that if Archer's tax-cut proposals are enacted, the Gregg cuts will achieve only a third of the deficit reduction needed to reach a balanced budget by 2002. Another $1 trillion in cuts will be needed.
In an interesting development, two house Democrats have put their own plans on the table aimed at achieving a balanced budget by 2002. Rep. Joe Kennedy's is the most detailed. Though it has the backing of neither House leadership nor the White House, Kennedy says he drafted the plan because ``it is the responsibility of Democrats to prove that balancing the budget does not mean gutting programs for the poor.''
He would cut $80 billion a year by means-testing Social Security, reducing health-care spending, eliminating $25 billion in tax breaks for business and reducing defense spending. He'd scrap anachronistic big-ticket items like Seawolf and the B-2.
Democrats and Republicans differ about what should be cut, but they have finally begun to agree that Congress must get the federal budget under control. So do we. The recent decline in the value of the dollar has been seen as an international vote of no confidence on the federal budget by investors.
Of course, it's easier to make elaborate budget plans and tax promises than to actually vote spending cuts. Especially since they will mean fewer health-care dollars available for the elderly, pension and Social Security payments that rise more slowly for retirees, reduced benefits for farmers and veterans.
Still, we share Packwood's view that spending cuts must precede tax cuts or the deficit will continue to soar. And the only politically viable way to make cuts of such magnitude is by forcing everyone to share the pain. We'll see if members of both Houses and both parties have the courage to vote that way. by CNB