TAX INCREASES have now become essential and urgent for reasons that neither President Bush nor his opposition have yet found convenient to explain. Over the coming weeks you will hear a lot of suggestions (from Republicans) that it's all the result of reckless social spending to win elections, or (from Democrats) that it's all the result of reckless tax cuts for the same hallowed purpose. It's true that the Reagan tax cuts were overdone, but there's a lot more to it than that.
Over many years, the federal tax system has eroded severely. It's true that there's been a big run-up in social spending over the past couple of decades, but vastly the greatest part of it has been in two programs, Social Security and Medicare, which are supported by their own taxes. If you set aside Social Security and Medicare, you will find that in proportion to the size of the economy -- the Gross National Product -- the total of other federal spending is about where it was two decades ago. But if you set aside the earmarked taxes that support those two programs, you will see a sharp change in federal revenues over those same 20 years.
The personal income tax is rising less in relation to GNP, but only a little less. Much more significant, the revenues from the corporate income tax have dropped dramatically -- and, incidentally, most of that happened before Ronald Reagan came to Washington. Part of it is the result of changes in the tax law, but much of it reflects corporations' increasing sophistication in avoiding taxes.
Similarly, the receipts from federal excise taxes have been falling in relation to GNP for many years because Congress has not adjusted them for inflation. Congress could raise $50 billion a year simply by putting the excise taxes -- the big ones are levied on gasoline, alcohol and tobacco -- back where they were, in relation to Americans' incomes, in the late 1960s.
Mr. Reagan believed, deeply but incorrectly, that economic growth would eventually generate the revenues, even at present tax rates, to balance the budget. Mr. Bush was following that assumption when he made his famous pledge of no new taxes. But the past six months have been savagely unkind to that frail hope. In January the White House cheerily forecast a deficit of $124 billion this year, $63 billion next year and balance by 1993. This month the Congressional Budget Office warned that under present policy the deficit will be about $195 billion this year, $230 billion next year -- including $70 billion for the S&L clean-up -- and still close to $200 billion in 1993.
Numbers like that imply either much faster inflation or sky-high interest rates. Their impact on the world's financial markets is more than any president could responsibly risk. That's why Mr. Bush and the Democrats are now gingerly beginning to talk about repairing the leaks and the erosion in the American federal tax system.