U.S. deficit looms large in campaign

August 09, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- It's the unwanted issue that won't go away. It's the one the candidates would rather avoid, but the non-candidates won't let them. It's the federal deficit, and it hangs over the presidential campaign as menacingly as it overhangs the national economy.

"I believe that people out there are finally recognizing they can't hide from this issue. They can run, but they can't hide," said Sen. Warren B. Rudman, the New Hampshire Republican who is retiring this year in frustration over Congress' inability to solve the nation's economic woes.

There is bipartisan agreement that the deficit must be reduced, but there is also a shared reluctance to confront the problem directly in an election year.

The reason: It involves hard choices, some so hard that the candidate who takes them does so at risk of his political life. Remember Walter F. Mondale? He proposed tax increases in 1984 and lost the vote everywhere except his native Minnesota and the District of Columbia.

Just how hard it would be to reduce the current deficit quickly was best illustrated by the economic program of non-candidate Ross Perot, leaked to U.S. News & World Report after his withdrawal from the race.

Like most other things, Mr. Perot proposed to take the deficit head-on, inviting outcry from special interests and ordinary folk, from rich and poor, had he pursued his campaign.

Under a Perot presidency, up would have gone Social Security taxes, the top federal income tax bracket and federal taxes on gasoline and cigarettes; down would have come Medicare benefits and home mortgage tax deductions. Over five years he planned to raise $300 billion in new taxes. His plan was designed to produce a budget surplus of $8 billion by 1998.

"It's quite easy to be bold when you are not running for election. I expect this will become the measure for bold ideas," said Scott Hodge of the conservative Heritage Foundation.

If Mr. Perot's program has set the standard for deficit-reduction ideas, it leaves President Bush and Democratic challenger Bill Clinton looking comparatively lily-livered. They both prefer to talk about growth, Mr. Bush achieving it through tax breaks for investors and industry, Mr. Clinton through public spending and limited help for the middle class.

"Ross Perot has a deficit reduction program. We have an economic program of which long-term deficit reduction is an important element," said Rob Shapiro, economic adviser to the nTC Arkansas governor.

Mr. Clinton said last week that his economic plan would halve the deficit by 1996. Based as it is on public spending and #F moderate tax breaks for the middle class, the poor and corporations, with only the rich paying more, the deficit is as likely to rise as fall under a Clinton administration unless economic growth is spectacular.

The same can be said of Mr. Bush's program. He has presided over a term during which the deficit has more than doubled. He is refusing to contemplate any tax increases to reduce it, relying on economic expansion to boost revenues.

"Most of these plans to reduce the deficit are depending on a large amount of income growth. The economic growth they are proposing is much higher than it is now and or what it is likely to be over the next several years," said Paul G. Merski, fiscal affairs director of the independent Tax Foundation.

There is as little argument over the cost of continuing high deficits as there is little political will to address them effectively in an election year.

The deficit for fiscal 1992 is projected by the administration to be $333.5 billion and by the Congressional Budget Office to be $368 billion. The latter projection represents 6.1 percent of gross national product (GNP), three times the proportion in the 1970s, when the average budget deficit was 2.1 percent of GNP.

In the 1980s, the average deficit was 4.1 percent of GNP.

Each year the deficit adds to the national debt. This now totals $4.01 trillion, with annual interest payments that ran at $286 billion last year, adding to the deficit.

The net result: Money that could be used for productive investment or savings is earmarked for debt repayment.

But deficit reduction, if done rapidly, also carries a risk of producing slower economic growth and more unemployment. The Perot austerity plan would have generated such negative fallout for the rest of the decade, according to an analysis done for the campaign by DRI/ McGraw-Hill.

Concern over the deficit, however, is clearly growing, according to the Roper Center for Public Opinion Research. In a Gallup Poll in May 1988, 44 percent of those questioned said they were "very concerned" about the deficit. By June of this year, 55 percent thought deficit reduction should have priority over all other national problems.

One long-term development fueling concern: the aging of America. Baby boomers are entering middle age, and by 2020 most will be retired, leaving a smaller work force to cater to a larger retired community.

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