Keep Congress Focused on Capping Entitlement Spending
A commission looking at deficit reduction is not the right venue for examining tax expenditures
DURING last year's budget debate, Sen. Robert Kerrey (D) of Nebraska was upset that President Clinton's deficit-reduction program contained no cuts in entitlements. Entitlements are programs such as Medicare and Social Security that are not subject to annual appropriations. Congress cannot cut such programs simply by appropriating less money. It must change the law establishing the eligibility for benefits. As a result, entitlements are the largest single item in the federal budget and the fastest-growing major element. It will be impossible to ever balance the budget without at least reducing the growth of entitlements.
For this reason, Senator Kerrey asked President Clinton to establish a presidential commission on entitlements in return for Kerrey's vote on the budget package. Subsequently, Clinton established such a commission by executive order and appointed Kerrey and Sen. John Danforth (R) of Missouri to chair the 32-member group. It held its first meeting June 13.
Even though the Kerrey-Danforth commission has no power and can only make recommendations for controlling entitlements, supporters of the status quo are clearly concerned that its report could lead to some major action on government spending. They are well aware of the American people's intense desire to cut spending and reduce the deficit - epitomized by Ross Perot's supporters - and the growing frustration over the deficit in Congress. In fact, supporters of the so-called A-to-Z spending-cut proposal - which would allow any member of the House to offer any proposal for cutting spending, including entitlements, and get a recorded vote - are very close to forcing the House leadership to allow this effort to proceed.
Consequently, opponents of entitlement-spending control are attempting to divert attention away from the real problem - spending - onto a nonexistent problem - tax expenditures. Tax expenditures are special provisions of the tax code that reduce government revenue. These include the mortgage-interest deduction and the exclusion for employer-provided pensions and health insurance. The idea is to treat tax expenditures as a kind of entitlement that should be reduced as part of any entitlement reform. This is nothing but a transparent effort to deflect attention away from spending and make tax increases a major component of entitlement reform. As Rep. Bill Archer (R) of Texas, a member of the commission, correctly pointed out, decreases in tax expenditures are the same thing as tax increases.
This not to say that all tax expenditures are justified or should never be tampered with. On the contrary, many complicate the tax code unnecessarily and distort individual- and business-investment decisions, thus impeding growth. However, they should not be withdrawn as an excuse to raise the tax burden on the American people and avoid responsibility for reining-in entitlement spending. Any scale-back of tax expenditures should only be done as part of a tax-reform effort that would lower tax rates and thus keep the overall tax burden from rising.
THERE is no assurance that restricting tax expenditures actually raises revenues anyway. The experience of the Tax Reform Act of 1986 is that withdrawal of one tax expenditure only encourages shifting into others. Much of the revenue anticipated in 1986 from the curtailment of tax expenditures never materialized. This is another reason why entitlements and tax expenditures are not comparable. Spending cuts unambiguously reduce the deficit; tax increases do not.
The entitlement committee should keep its focus exclusively on entitlement spending and not allow itself to be diverted onto unrelated tax issues. It is not as though there is any shortage of ways to cut entitlements. All that has been lacking is the political will to confront special interests that benefit from entitlements. If we simply held real (inflation-adjusted) benefit levels constant, adjusting for growth of the beneficiary population, we could easily reduce entitlement spending sharply without making anyone worse off. The problem is that real benefits have been rising out of proportion to population growth due to indexing and benefit formulas that have not been adjusted for many years.
If Senators Kerrey and Danforth stick to their mandate and offer meaningful suggestions for reducing entitlements, they will be doing a great service. But tax expenditures should stay off the agenda. The Opinion/Essay Page welcomes manuscripts. Authors of articles we accept will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.