Budget Endgame

October 19, 1990

Political posturing by combatants in the budget battle has been all the rage -- and outrageous -- since election-minded members of Congress gunned down the deficit reduction package negotiated by their own leaders and the Bush administration. Now the whole mess is being dumped on a Senate-House conference committee, which will try again to put together a deal that can pass muster at both ends of Pennsylvania Avenue.

Democrats and Republicans alike have been so intent on pledging their allegiance to the great American middle class, where the votes are, that the unwary might overlook the fact that this is where the bucks are, too. Seizing an opening provided by a right-wing GOP mutiny against George Bush in the House, Democrats have had a high old time trotting out slogans like "Soak the Rich."

Populism can be good politics, as the New Deal well proved, especially when fat-cat eras give way to tough times. But whether populism is the proper economic formula for a nation drowning in debt is a matter that should concern responsible budget conferees when they get behind closed doors.

What momentarily doomed the summit formula was the painful medicine it prescribed for a society that had been told to "be happy, don't worry" as foreign investors financed runaway U.S. deficits. Lawmakers intent on re-election dispensed soothing syrup. Anti-tax Republicans and welfare-state Democrats attacked the formula from opposite ends, with Democrats for the most part scoring points against a vacillating Republican president.

As conferees go to work, however, something very close to the summit formula is likely to appear under appropriate bipartisan political cover.

This newspaper sees little advantage in altering 1986 tax reforms which attempted to treat all income alike, whether from earnings, dividends, interest or sale of assets. A reiteration of the summit decision not to change income tax rates or give preferential treatment to capital gains would be welcome. If there is a compromise, it should be modest -- an increase in the top rate to perhaps 31 1/2 percent and preferential treatment only for gains on long-held assets.

Assuming the aim is to create an impression of "fairness" after a decade of upward redistribution of wealth, a surtax on high incomes or limitations on deductions or an increase in the alternative minimum tax would be a better approach.

If this long, demeaning budget struggle is to produce any long-term benefit, it may come on the spending side. Even populist lawmakers seem poised to approve a budget enforcement mechanism -- the so-called "categorical sequester" -- that will mandate automatic cuts in specific areas of government activity whenever specific budget ceilings are punctured. It's about time.

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