A Modest Proposal to Balance the Budget

RARELY has an issue generated more political flimflammery than current discussion of the federal government's budget.

Prominent in the Republicans' Contract With America is a constitutional amendment to require that the budget be balanced. This is an effort to give the impression that Congress is doing something constructive about the deficit when Congress in fact is doing nothing. The amendment would clutter the Constitution to no purpose. It is an abdication of political leadership.

Both Democrats and Republicans are advocating reduction of taxes on the middle class. But the middle class is the principal beneficiary of the spending that is the main cause of the deficit.

Nobody addresses the heart of the budget problem. It is really very simple. The government spends too much and taxes too little. You do not meet this situation by amending the Constitution. Neither do you meet it by taxing less.

One of the more unfortunate legacies of President Reagan is that ``tax'' has become a dirty word, hardly fit for polite conversation or the pages of a family newspaper. But taxes remain the way the government gets its money. And taxes have to be part of any rational discussion of how to get rid of the $200 billion gap between spending and revenue.

One of the troubles the Republicans in Congress are having in dealing with the budget is that too many of their cuts are based on ideology instead of arithmetic. They use economy as an excuse for eliminating programs to which they have visceral objections. The Corporation for Public Broadcasting, the National Endowment for the Arts, and the Department of Education are in this category. Government's role in each of these areas is a legitimate subject of political debate; but don't kid anybody that abolishing them, along with others of the same character, will save significant amounts of money.

In order to reduce government spending enough to make a difference, you have to go where the money is. The money is in the programs which primarily benefit the elderly middle class - Social Security and Medicare, as well as pensions, student loans, unemployment compensation, veterans' benefits, and agricultural subsidies. A smaller group of programs benefit the poor - mainly, Medicaid, food stamps, and welfare.

Social Security, Medicare, federal employee retirement and disability, and interest on the national debt together account for more than half of all federal spending. Interest on the debt will come down as the debt comes down; otherwise, we can't do much about it. That leaves Social Security, Medicare, and federal retirement. Herewith a modest proposal:

Let Social Security payments be counted as taxable income to the recipients. Such payments are partially taxable now, but there is talk about restoring their tax-exempt status. These payments are like pensions or annuities. Other pensions and annuities (including those of federal employees) are taxed. Why shouldn't Social Security be treated the same? Poor old people who receive lower benefits would pay less tax; rich old people who receive higher benefits would pay more tax.

Let Medicare payments to health-care providers be counted as taxable income to the persons on whose behalf the payments are made. Example: Medicare pays a doctor $100 for services rendered to Joe Smith. Joe adds $100 to the income he reports to IRS and on which he pays taxes. (Medicare also reports to IRS just to keep Joe honest.) If Joe did not have much income without the Medicare payment, he would not pay much, if any, additional tax. If he had more income, he would pay more tax. There would need to be an upper limit beyond which Medicare payments would not be taxable.

There are other ways to decrease spending or increase receipts in the Social Security and Medicare programs. You could increase Social Security withholding taxes or tinker with the retirement age or cost of living adjustments. With Medicare, you could increase the premiums or co-payments or deductibles.

The advantage of the approach suggested here is that it recaptures benefits without reducing them. The recipients get just as much, but then they give some back. Thus would the government recycle money. 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 by mail 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.

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