Last summer, Sen. Tsongas gave a much acclaimed speech asserting that the old liberal Democratic formulas were irrelevant to the problems of the 1980s. How does he feel about the Reagan alternative
The Reagan administration's economic package deserves high marks for sheer initiative. It came with a sense of urgency that is clearly warranted and long overdue. President Reagan is correct -- business as usual will not work. Instead, Americans are promised a bold new course based on less regulation, tax cuts and cutbacks in federal spending. Each of these components appeals to the public mood; some form of each is essential.
The basioc debate involves how to enact these appealing principles. Curing America's economic ills and building long-term stringth will require priorities and pragmatism. The danger is that the administration's economic plan will be bound by a straitjacket of rhetoric and dogma.
The girst element -- less regulation -- is a goal Americans generally support. But regulatory reform must not be so extreme as to lead to the same abuses that brought about the last wave of regulations. We don't need another extreme swing of the pendulum.
The tax cut component raises a fundamental question: Why? In a period of high inflation and large budget deficits, a tax cut must have a reason. To borrow money for a tax cut is on its face a rather silly exercise in sleight of hand.
The compelling reason for a tax cut is industrial revitalization -- to cause the individual business leader to decide to invest in physical plant, equipment and research and development. Unless the U.S. industrial base is renewed, we can look forward to an America awash in foreign goods purchased by unemployed American workers living off what is left of the welfare system.
The fact is that the reindustrialization of America -- the return of America to competitiveness in international markets -- is critical. Tax cuts to accomplish this objective (e.g., accelerated depreciation, investment tax credits, tax credits for basic research) are justified. All Americans are in this boat together. We all have a stake in repairing the leaks.
The only part of the Reagan economic initiative that recognizes these needs is accelerated depreciation. But this targeted policy is coupled with the Kemp-Roth "shotgun" approach in a marriage of political convenience. This 30 percent cut in personal income taxes represents bumper-sticker economics. (The vice president once called it "voo-doo economics.") The chairman of the Senate Finance Committee, Robert Dole, has been cool to Kemp-Roth. Privately, many Republican senators consider it a kind of flypaper.
The Kemp-Roth approach has become part of Republican theology just at the time when many Republicans realize that the needs of 1981 America are not the same as they were just before the 1964 "Kennedy" tax cut. The theory of the Kemp-Roth bill is that lowered individual tax rates will cause workers to produce more, earn more and save more. Increased production -- bolstered by increased investment -- will boost the supply of goods and services enough to accommodate the increase in demand. Nonsense. The approach is inflationary, and inequitable to middle- and lower-income households -- a significant redistribution of income.
Worse still, every borrowed dollar earmarked for the Kemp-Roth scattershot is a dollar not targeted for industrial revitalization. The American people need more business reinvestment -- not quick-fix promises that would feed inflation while disregarding long-range recovery. Given our acute, specific economic problems, the full range of business tax incentives should not be sacrificed in the altar of Kemp-Roth. Republicans owe Kemp-Roth a decent burial, but burying dogma is hard, as Democrats have learned to our sorrow.
The third part of the package is spending cuts. Fine. Some clearly are appropriate. CETA, for example, has been abused. But what about Urban Development Action Grants (UDAG)? Unlike CETA, the UDAG program creates permanent jobs by leveraging private dollars into long overdue investment in our older cities (a remarkably Republican notion). Can it be seriously argued that our economy is better off with cities decaying when they can be brought back, as UDAG projects have shown? Forget human costs, if you insist. Who pays for decaying cities, anyway? Who foots the bill for welfare, food stamps and other programs burdened by economic stagnation? Washington, of course.
Does it make sense to avoid massive federal underwriting of synthetic fuels production? Yes. But it is foolish false economy to kill the Conservation and Solar Bank, a cost-effective contribution toward U.S. energy sufficiency. Energy security is inseparable from America's survival and security.
Indiscriminate cuts in budget items simply do not make economic sense. Some "spending) programs are extraordinary investments . The Reagan administration has yet to demonstrate an understanding of this distinction.
Finally, why are we prepared to cut programs like UDAG and the Conservation and Solar Bank? The answer seems to be that we must sacrifice to finance many billions of new defense dollars. There are reports of a $43 billion increase in authority for 1982, a 12 percent jump in real terms. Why 12 percent? Because the Soviets are engaged in an arms buildup, and every realist knows that the American defense budget is written in the Kremlin. If they do it, so must we. But why 12 percent? If the increase were 3 percent (which our NATO allies accepted) or even 5 percent, there would be adequate funds for the investment programs like UDAG and the Conservation and Solar Bank.
Why 12 percent? Because we have witnessd the death of SALT II and the eclipse of arms control. The psychology of the arms race has replaced the realism of arms limitation. Who killed SALT II? One guess per reader.
Suddenly, long-dormant plans for controversial weapons are coming to life: the B1 bomber, ABM, more aircraft carriers, the neutron bomb, chemical weapons. But massive arms spending takes away critical capital and technical expertise needed to address America's energy and economic infrastructure needs. And if our economic and energy needs are not met, then where are we in terms of real national security?
The demise of SALT II and the rise of Kemp-Roth represent a triumph of ideology over pragmatism. Both policies are out of joint with reality. They represent an ideological inflexibility that tilts government away from practical, tough-minded policies. A lack of priorities and pragmatism was essential to the Democrats' fall from power -- and in this regard, the Republicans are imitating the Democrats to a fault. I believe that whichever party can retire its outdated dogma and embrace realistic programs will govern for a long time.