Cut That Deficit!

January 23, 1992

Washington's favorite punching bag these days is the 1990 federal budget agreement, arguably the most creditable instrument of fiscal discipline our politicians have imposed on themselves in a long, long time. It has not forestalled a recession-fired spurt in the federal deficit to a new high of $362 billion. But without it, according to the Congressional Budget Office, the nation would be "in a much deeper hole."

That being the case, our politicians should logically be celebrating the end of the Cold War and their consequent opportunity to slash military spending and cut the deficit. That, after all, was the supposed purpose of the 1990 accord between Congress and the Bush administration. Well, don't believe it. Election-minded Republicans and Democrats are crowding around the federal trough.

Radical Republicans, masquerading as "conservatives," are all for using projected defense savings to cut taxes -- especially taxes on business and entrepreneurs. Some old-line Democrats, with memories of New Deal political success, want to use the military dollars for public works projects. Others among them are all for a "middle-class tax cut" guaranteed to be larger than anything coming out of the panicky Bush White House.

Missing from this list for cashing in on the peace dividend are voices for deficit reduction. The reason trotted out is the recession. Even the CBO, despite its warnings of explosive growth in the federal debt, says further deficit reduction would be "inadvisable" this year. So should we wait till next year?

Last year, before the recession, Democrats were already trying to sabotage the budget agreement by breaking down "fire walls" designed to prevent defense savings from being turned into domestic spending sprees. Next year the budget agreement is due to expire and the feeding frenzy can begin in earnest.

If politicians were honest about it, they would confess some unpalatable truths, to wit: Nothing that is likely to come out of the Congress this year will really put a quick end to the recession; nothing Washington politicians can do will be as stimulative as the Federal Reserve Board's repeated reductions of interest rates; nothing is more important to the nation's long-run economic health than putting a rein on the federal debt.

It seems inevitable that despite all of the above, the Washington Establishment will seize upon a decrease in the defense budget to cut taxes and boost domestic spending. Deficit reduction will come in a poor third.

Yet we urge all believers in fiscal discipline to keep up the good fight: Insist that middle-class tax cuts be paid for by reductions in middle-class entitlement programs. Resist the Reaganomics notion that capital-gains tax cuts will actually increase revenues. Desist from tearing apart the only fiscal straitjacket that prevents politicians from doing the easy thing. This is a fight that won't be won. But it might hold down the damage.

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