THE BUDGET negotiators are running out of time, and this is the week they supposedly get down to business. It shouldn't be that hard.
Their tentative earlier goal was to cut the deficit $50 billion in the fiscal year beginning Oct. 1, on the way to a cumulative $500 billion over the next five years. Now the Iraqis have taken Kuwait, oil prices are up in an already soft economy, recession is both a greater threat and better excuse than it was in July, and the defense budget is a less easy target. So for a mix of reasons good and bad, the sculptors are talking about doing less at the start of the five-year period, more toward the end. That's okay so long as the down payment is genuine and the steps in the later years are locked in. Promises won't do.
The deficit reductions should be about half in the form of tax increases, half in spending cuts. As a substantive matter, taxes should probably be somewhat more than half -- there's less to cut on the spending side than the rhetoric on either defense or domestic excess would suggest -- but as a matter of politics, half and half is likely the best that can be hoped for.
The tax increases should be progressive; the federal tax structure has lost too much of its progressive edge in recent years. The best way would be to increase income taxes either by raising rates or curbing deductions as income rises. Rate increases especially are anathema to Republicans, and the administration has been mulling excise increases on alcohol, tobacco and gasoline or energy more broadly instead.
As deterrents, those would all have useful social effects but would be regressive; their regressive nature would have to be offset. The offset should not be through an increase in the earned-income tax credit for the working poor with children, which Congress was already moving toward passing as part of a child care bill. The EITC should be the promised plus for the poor, not the wash that this use would make it.
If the president also won't play without a cut in the capital gains tax and can't be dissuaded, the cut should be in the form of indexing gains prospectively only -- no windfall -- and it, too, should be offset, since it would benefit the highest-income taxpayers almost exclusively. Part of the offset should be to tax capital gains at death -- they escape taxes now -- and part should be through a higher top rate. The top rate was only taken down to 28 percent in the reform act of 1986 after it was agreed to tax capital gains the same as ordinary income. If half that deal is now to be broken, so should the other half.
As to spending: defense will indeed be harder to cut, as perhaps it should. Some Democrats particularly were preparing to turn it into too much of a piggy-bank. On the other hand, the budget can still be cut significantly, as well as refigured. Industry lobbyists have instantly converted just about every weapon that was threatened before the Iraqi invasion into the perfect answer to Saddam Hussein. Some may be but surely not all.
Clearly, however, a significant share of the spending cut will also have to come from domestic programs. The largest of these, Social Security, should be required to make a contribution. The simplest way would be to forgo one year's cost-of-living increase in benefits, but a fairer way would be to subject a larger share of benefits than now to the income tax.
The main thing is that the country can't healthily go on with a deficit this high. The threat of recession, far from being a reason not to cut the deficit (though it does counsel doing so gradually), demonstrates why it must be cut. The government is now helpless. On the one hand, it has no reserves to combat a recession; on the other, a recession will merely drive the deficit higher and deplete its reserves even further. The higher deficit meanwhile puts upward pressure on interest rates, compounding the recession and making it harder to escape while leaving the country ever more dependent on money lenders abroad. Who wants that?
It's hard to do what needs to be done in a soft economy and an election year. Harder still may be for the president and members to go back to the voters and explain why they didn't do it. It's time and long past time to act.