Priority: the budget
FOR many observers, the American economy remains an enigma of conflicting political and individual crosscurrents. That the system works as well as it does is astonishing, given the millions of individuals, families, labor unions, small businesses, farming communities, and giant corporations -- not to mention local and federal government -- that taken together constitute the day-to-day components of the American economic framework. What is important to remember, looking at all this, is that the central nucleus of the United States economic system remains the concept of planning -- planning not in the socialist or communist sense of an overarching agenda for society at large -- but millions of short-term and long-term policy goals of individuals and businesses. The business community, in particular, is continually making decisions about the future. To do that, business leaders must have some feel about the future course of tax law and federal fiscal policy.
We raise this discussion about the importance of planning because of what is happening in Washington these days, as Congress and the White House move on two distinct, but not necessarily compatible, policy tracks: deficit reduction and tax reform.
President Reagan is taking his crusade for tax reform out into the American countryside. Certainly, his avowed goal for reform cannot be faulted. But at the same time, there is mounting evidence that the drive for deficit reduction is floundering in Congress.
Some economists are now estimating that the budget cuts of $56 billion or so planned for fiscal year 1986 will in fact be no more than $25 billion or $30 billion. Moreover, a number of economists are concluding that federal deficits in 1988 will be higher than the $100 billion that the administration and Congress have sought to achieve. Deficits could actually reach $170 billion or more.
Tax reform, meanwhile, if enacted as currently written -- although that is considered unlikely -- would probably add to the deficit. Treasury officials concede that the plan is not revenue neutral, that is, producing as much revenue as does the current tax code.
Which brings us back to our point about planning. Individuals, families, and especially businesses need to have a relatively clear sense about the tax and fiscal policies that will be in place from year to year. Yet, that is increasingly difficult today, given the current groping in Washington.
Deficit reduction remains the overriding priority. Congress and the White House need to coordinate a comprehensive deficit reduction plan. Then -- and only then -- should Washington turn to tax reform.