GAO says tax hike unavoidable

The General Accounting Office said Saturday that tax increases and cuts in defense and social security must be considered to slash a federal budget deficit that threatens the nation's economic future. ``Additional revenues are probably an unavoidable part of any realistic strategy for reducing the deficit,'' the congressional watchdog agency said in reports to President-elect George Bush and leaders of the House and Senate.

Comptroller General Charles A. Bowsher, director of the GAO, said a workable solution can be developed only through close cooperation between Congress and the new President, with Mr. Bush personally involved in the negotiations.

The GAO, which uses hundreds of experts in every field to oversee the federal bureaucracy on behalf of Congress, made no recommendations on which taxes should be raised or which programs should be cut.

The report, however, cited estimates that $30 billion could be raised annually with slight increases in personal income tax rates. It said a 5 percent national sales tax on most commodities except food, housing, and medical care would yield $67 billion a year.

``All participants must consider all parts of the budget to be negotiable, including defense, entitlements (such as social security and medicare) and revenues,'' the agency said.

``The budget problem must be solved for the new administration to have any flexibility to pursue its own policy agenda, for the economy to regain its vigor, and for the American people to enjoy a long-term standard of living comparable to the rest of the developed world,'' Mr. Bowsher wrote.

But the GAO said it saw no ``quick or painless solutions'' to the deficit, which stood at $150 billion in the budget year that ended Sept. 30. It specifically rejected four approaches that have been proposed:

``We cannot `grow' our way out of the problem,'' an approach favored by some in the Reagan administration and reiterated this week in a report by the conservative Heritage Foundation. ``Public demand for government services - to solve problems ranging from drug abuse, AIDS, education, and homelessness to drought and forest fires - grows as fast as revenues,'' the GAO said.

``We cannot `freeze' our way out of the problem.'' During his presidential campaign, Bush repeatedly rejected higher taxes and advocated a ``flexible freeze'' on spending. The GAO noted that the great bulk of the budget is in politically sensitive areas such as social security, farm price supports and defense, or in fixed interest costs.

``We cannot reach out and effortlessly gather in some magic pool of uncollected revenues.'' Democratic presidential candidate Michael Dukakis proposed raising revenues by collecting the $86 billion or more in unpaid tax liabilities annually. The GAO said administrative costs would be high, and it would require several years to train new Internal Revenue Service agents for the job.

``We cannot `sequester' our way out of the problem through mechanistic, formula-based program cuts of the sort prescribed in the Gramm-Rudman-Hollings ... legislation.'' That law is aimed at balancing the budget, but the GAO noted that as much as 80 percent of the budget is exempt from the law's mandated cuts.

The GAO said the real deficit in the government's general fund is not $155 billion but $252 billion. A $97 billion surplus in social security funds makes the general deficit look smaller.

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