New taxes (sigh) may be needed to fix the deficit

Here's a nice simple question: Is the budget deficit getting better or worse? Simple addition and subtraction should produce a simple answer. But that's simply not the case.

It's an important issue. If the deficit is falling, the read-my-lips, no-new-taxes pledge of President-elect George Bush is perhaps possible. But if the deficit is increasing, government programs might have to be slashed and new taxes raised. So what's the answer?

``Recent efforts to reduce the budget deficit have been unsuccessful,'' says a business-labor-academic group, the Council on Competitiveness, in a major report released this week. The council is chaired by John Young, president of Hewlett-Packard, and includes John Ong of B.F. Goodrich, Paul Gray of the Massachusetts Institute of Technology, John Akers of IBM, and a number of labor and academic leaders.

``The deficit,'' they say, ``is increasing, not decreasing.''

But wait. In the current issue of Business Week, economist Paul Craig Roberts asserts that ``Far from increasing, the deficit has declined dramatically both as a percentage of gross national product and in absolute size.''

The Council on Competitiveness, however, cites a Congressional Budget Office estimate that the budget deficit will increase from $199 billion to $220 billion between fiscal years 1989 and 1993. Only when one calculates the surpluses in the Social Security Trust Fund does the deficit appear to be decreasing.

But Mr. Roberts, a former US Treasury official, says that's a perfectly valid way of doing the calculation. He also cites Robert Eisner of Northwestern University, who contends that the US doesn't really have a budget deficit. Among other things, Dr. Eisner suggests that the government could amortize its long-term investments rather than treating them as current expenses, realize that inflation makes the debt less of a burden, and add in state and local budget surpluses.

``For half a century businessmen have been predicting that deficits would destroy the country,'' Mr. Roberts said in a phone interview yesterday. ``But that's simply not true.''

The Council on Competitiveness doesn't buy that. The deficit, it says, threatens current prosperity and will saddle the next generation with debt payments where there should be investments in improved schools and scientific and technological advancements. The council wants the budget deficit reduced ``promptly, significantly, and resolutely.'' It calls for caps in federal spending and gingerly suggests that new taxes will be needed.

``As much as we'd rather not face the prospect of increased taxes,'' Mr. Ong says, ``we are convinced that financing federal spending through taxes is greatly preferable to deficit financing, which is far more damaging and insidious.''

Concern about the deficit was also expressed yesterday by Paul Volcker, former chairman of the Federal Reserve. ``The effort now must be to get the deficit down,'' Mr. Volcker told the National Economic Commission. The NEC is a nonpartisan group established by Congress to come up with a plan to do just that.

Taxes - controversial as they are - are likely to be part of any such plan. The Council on Competitiveness advocates higher excise taxes on cigarettes and alcohol; a 20-cent-a-gallon motor fuels tax; limiting deductions on home-equity interest and second homes; tougher tax audits to net more revenue; formalizing the 33 percent tax rate for upper-income Americans; and levying a temporary 5 percent surtax on individual income.

But economist Roberts counters their proposal this way: ``If they think the deficit is such a huge problem, let's put the taxes on them.''

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