President Bush has just taken to national TV to request contributions from the international community to help sustain our soldiers in Saudi Arabia. The estimated cost for the Gulf forces is $1 billion a month. Would that the interest costs on the national debt would grow only at that rate: it is now estimated at $3 billion a month for a total of $286 billion for 1991, and America's sleepy body politic will only be roused to action on the budget deficit if the president takes to national TV with a dramatic call to arms.
Everyone seems to have forgotten the precondition for the budget summit -- a majority of Republicans in both the House and the Senate must be on board with a majority of Democrats before there is a deal. Yes, the summiteers with the pressure of the Gulf war can come to a deal, but the majorities in Congress will never go along unless the people know and understand the need for substantial taxes to get us out of this fiscal quagmire once and for all.
For years, we have been toying with freezes, asset sales and enforced automatic cuts, but the deficit and debt continue to grow. All in Congress are weary of the smoke and mirrors, and only a real solution will gain the necessary support. Indeed, constituent pressure for the moment is against a real solution -- against new taxes and against painful budget cuts. While the Gulf crisis has us all in a mood to do the right thing for our country, any summit deal will be dead on arrival without an energetic campaign by President Bush to educate Americans about the magnitude, cost and danger of our fiscal crisis.
Until now, the summiteers have been nibbling on the bullet, not biting it. First, they have agreed to $50 billion in deficit reduction in fiscal year 1991. But spending next year on the S&L bailout alone will approach $100 billion, so we are taking one step forward and two steps backward.
Second, some summiteers claim that only $500 billion in deficit reduction is necessary in order to get a balanced budget in 1995. In actuality, closer to $600 billion will be required, and even this unrealistically assumes zero new spending initiatives by the education president, the environment president, the child care president and his like-minded colleagues in Congress.
Third, the summiteers seem to think that a FY 1991 deal of $50 billion -- $25 billion in taxes, $25 billion in cuts -- will somehow magically parlay into $500 billion in total deficit reduction by 1995. It won't. The Congressional Budget Office estimates that even with $500 billion in budget cuts and new taxes by 1995, we would still be left with a deficit of $137 billion.
Yes, the negotiators have broached the T-word, but they have yet to spell it out in brassy capital letters: T-A-X. Instead, there have been whispers about new user fees and excise taxes, plus higher taxes on beer, wine and hard liquor. But short of the United States becoming a nation of alcoholics, such taxes will never amount to more than several billion in new revenue. More critically, these taxes are static -- not dynamic; they don't generate the significantly higher revenue streams in future years that will be needed if we are truly serious about balancing the budget.
Any credible strategy for achieving balance by 1995 consists of three components:
1. Deep cuts in existing spending. Iraq notwithstanding, we must go full-speed ahead with hefty Pentagon spending cuts concentrated in grossly expensive strategic weapons programs that are increasingly irrelevant. In addition, popular entitlement programs must be significantly cut -- period.
2. Major new taxes. At present, we are spending $400 billion-plus in excess of what we are taking in (this total includes the $169 billion official deficit estimate, plus the $100 billion we will spend on the S&L bailout in 1991, minus the $135 billion we are pilfering from the various trust funds). Since no one seriously argues that we can cut $400 billion out of a $1.2 trillion budget, we have no choice but to turn to taxes.
The cornerstone of my own deficit-reduction plan is a broad-based consumption levy -- a value-added tax -- modeled on the VATs that have proven so successful in the European Community and across the Pacific Rim. We pretend to enjoy the luxury of picking and choosing among higher excise taxes, energy taxes, sin taxes, income taxes and so on. But the reality is that we need all of the above.
The most efficient, equitable way to tax everything from energy to liquor to VCRs is simply to levy an across-the-board value-added tax on consumer goods and services. A 5 percent VAT -- excluding food, housing and health care -- would raise $89 billion in its first full year. More important, it would generate steadily higher revenues as the economy expands in future years.
In addition to the VAT, I favor significant new energy taxes. Saddam Hussein is levying a mega-billion-dollar energy surcharge on the American people (payable to OPEC). Take your pick between paying taxes to Uncle Saddam and paying taxes to Uncle Sam.
3. New -- yes, new -- domestic spending initiatives. We will be starting up significant new spending programs between now and 1995. As we move from the Cold War to the trade war, there is a consensus demand to spend more for education, for infrastructure, for child care and for other pent-up needs. The major bipartisan proposals now on the table add up to some $6 billion in new spending in 1991. We need to get the country moving again.
All in Washington have responded to the military crisis in the Gulf. But on the even greater fiscal crisis, we are AWOL. As long as there is no consensus on the scale of the problem -- with no political will to legislate harsh remedies and with a public that is blissfully oblivious of the crisis -- it is silly to expect the budget summit to produce a serious result.
The writer is a Democratic senator from South Carolina.