Share this article

print logo

WASHINGTON SHOULD CONSIDER LAFALCE'S PLAN TO CUT DEFICIT RESPONSIBLE START, MIXING PAIN AND EQUITY

THERE ARE PLENTY of bad deficit-cutting plans being put forward in Washington. Far too little attention is being paid to a good one proposed by Rep. John J. LaFalce, D-Town of Tonawanda.

LaFalce is not one of the major players now involved in the "budget summit." But good thinking isn't the sole province of Washington's mightiest.

As Congress and the administration try to work out a responsible budget agreement, they should listen to LaFalce's ideas and use them as the basis for a new discussion. His plan is designed to dry up the red ink and turn deficits into surpluses over five years. It takes full advantage of the peace dividend, as Bush is too reluctant to do. And it spreads the inevitable burden of new taxes equitably.

The proposal especially shines when compared with several bleak recent ideas peddled in the nation's capital.

Take the one that would reduce the deduction allowed for home mortgage interest, for example, or the Bush administration recommendations for modest cuts in defense spending but large ones in health care.

The LaFalce plan spreads pain very broadly. It does not rely on dubious gimmicks. It also addresses one of the sleeper issues of the 1980s -- the Reagan-era redistribution of the federal tax burden away from the rich and toward the middle class.

With tax increases, a tax cut

LaFalce has added his own ideas to some borrowed from proposals by others -- notably Sen. Daniel Patrick Moynihan, D-N.Y., and Rep. Daniel Rostenkowsi, D-Ill. The eclectic result sounds a tone of balanced sacrifice.

And there's the carrot -- a cut in Social Security payroll taxes paid by American workers and their employers, saving them $254 billion over five years. The tax rate would drop one full percentage point in two phases. This cut would make it easier for the public to accept the 1 percentage point income-tax increase also in the plan.

The cut also would begin to restore lost progressivity to America's tax system. Some of the government's reliance on the Social Security payroll tax, which hits low- and middle-income workers far harder than the rich, would shift to the much more fairly distributed income tax.

LaFalce would cut federal spending by $305 billion over the five years, with $250 billion coming from defense. Much of the cutting in domestic programs would come from a one-year scaling back of cost-of-living adjustments to 2 percent less than the rate of inflation. If inflation were 6 percent this year, for example, Social Security and federal pension payments would rise by 4 percent next year.

LaFalce would raise taxes on such items as beer, cigarettes and motor fuels, for $171 billion over five years. If fringe benefits exceeded $100 a month per employee, he would tax them as income.

Three brackets, two higher

He would eliminate the "tax bubble" that favors the very rich. The highest tax bracket would be extended to cover all income above the level where it now kicks in.

The top two tax brackets would be raised one percentage point each, leaving three new brackets at 15, 29 and 34 percent and raising an estimated $132 billion extra over five years. Also higher would be the amount of Social Security benefits going to the affluent that could be taxed -- a sensible reform. Now the taxable portion is 50 percent, which LaFalce would boost to 85 percent.

There is plenty of fiscal pain in the plan, even without LaFalce's proposed temporary surcharge on taxes to pay off S&L expenses immediately in order to save billions in interest costs. But the continuing deficits are causing their own kind of pain, much of which will fall on the nation's children and grandchildren as interest costs swallow up more and more of the federal budget.

This is the sort of blend of higher taxes and lower spending that can erase the deficit. Somebody in Washington ought to listen.

There are no comments - be the first to comment