Itis tempting to interpret the recent budget deal as an indication that the Reagan revolution is finally over. Much of the red ink it produced has been sopped up. The Democrats have made tax fairness a legitimate issue again, and the president has agreed to new taxes that distribute the pain in a modestly progressive fashion. In addition, the country is no longer mired in deep Voodoo. The supply sider's credo of lower taxes as a sure-fire tonic for the economy has been replaced by a sober-minded focus on large deficits as the far greater threat to economic growth. These are real accomplishments. At the same time, it would be a mistake to conclude that the revolution is over. The basic questions it raised about taxes and spending have not yet been resolved.
The most important of these is why anyone should pay higher taxes in the first place. Given the widespread assumption that government budgets are full of waste and that almost everyone in Washington is incompetent -- a perception that recent events have surely strengthened -- Republicans can continue to win political points by arguing for lower taxes and less government. The president is already distancing himself from the tax part of the budget deal by insisting that the Democrats made him do it. For their part, the public may prefer fair to unfair taxes, but their first choice remains no new taxes at all. If this preference were nothing more than simple greed, or a belief in the growth-enhancing effects of lower revenues, Democrats would now have the upper hand. But it isn't. It's concern about the value of government itself.
Given this concern, there is no substitute for educating the public about exactly what their tax dollars buy. Fifteen cents out of every dollar is for interest on the debt, most of it accumulated since 1980. In fact, just the increase in debt during the past 10 years is costing the average taxpayer $1,300 a year. No wonder we seem to be getting less for our money. Taxes that used to buy real benefits or real government services have been diverted to paying our creditors, many of them from other countries. The budget agreement, by curbing future borrowing, will help to reduce such unproductive outlays. However, interest on the debt will remain high and will continue to reduce the amount of real services that each dollar of taxes can buy.
Another 24 cents goes for defense. As a result of the budget agreement this ratio will fall over the next five years. Whether further savings are possible will depend on events in the Persian Gulf as well as a continuing debate about the U.S. role in a post-Cold War era. But possible or not, for the next three years the budget implictly assumes that the debate about the peace dividend is over. Moreover, the new budget rules require that any additional savings in the defense area be used for deficit reduction; none will be available for social programs.
Domestic spending accounts for the remaining 61 cents of each tax dollar. It includes everything from national parks to the president's salary, but it is increasingly dominated by spending on what are usually called middle-class entitlements. These include benefits for the elderly, farmers, veterans, students, the unemployed and retired government workers. These programs are very popular and thus difficult to cut. They are also growing rapidly. Entitlements were 47 percent of the budget in 1980 and are projected to rise to 57 percent by the year 2000 under the policies in effect in 1990. They are mostly a check-cutting operation, so it is hard to argue that there is anything inefficient about them. Either we want them or we don't; but if we do, then there is no alternative to paying for them.
The president, in his disavowal of the need for higher taxes, has been less than candid about this. He can't have it both ways. Either he is for higher taxes or he is in favor of cutting benefits for the elderly or some other middle class group. Although the budget agreement includes almost $100 billion in entitlement savings over the next five years, it did little to restrain the growth of programs for the elderly. Not only were Social Security benefits untouched but they were effectively insulated from future cuts by removing the program from the deficit calculations. And after a storm of criticism from the elderly about the original summit package, Medicare benefits were only modestly pared. Yet these two programs for the elderly are responsible for all of the projected growth in domestic spending between now and the year 2000.
The remainder of the domestic budget (the so-called discretionary part) pays for the general operations of government and also for research, education, training, law enforcement, the environment, the war on drugs and other problems about which the public has evidenced increasing concern. These outlays are relatively small and getting smaller. In 1980 they accounted for 27 percent of total spending but are slated under existing policies to fall to 15 percent by the year 2000. The budget agreement slows this trend a bit but not by much. Under the new rules, these programs will be permitted to grow no faster than inflation after 1991. The likely result is that investments in the future will be neglected and that the social deficit will grow. Not all of the programs in this category are effective, but many have been carefully evaluated and found to be good investments that actually save the taxpayer money over the longer run. In particular, investments in children may be as important as fiscal discipline to improving the long-term competitiveness of the economy.
It would be nice if future elections could be devoted to a debate about which outlays are worth preserving or expanding and which ought to be curtailed. Instead I fear the debate will center on who is more devoted to cutting your taxes and who to making sure that the ones you pay are fairly distributed. Both avoid the central issue of what we want government to do.
The writer is a senior fellow at the Urban Institute and a visiting professor at the Georgetown University Law Center.