THERE'S one kind of expenditure that the administration's budget-cutters have carefully avoided -- the tax expenditure. That is the income tax deduction that Congress gives you if you spend your money in certain ways. The administration is staying away from the subject of tax expenditures because it does not want to be accused of raising taxes even by closing loopholes. But it's becoming increasingly clear that to balance the budget, and at the same time cut the income tax rates, the administration is going to have to go after the tax expenditures.
An example of a tax expenditure: If you pay your bills on time, you do it with your own money. But if you fall behind and incur credit charges, the federal government helps you pay them. Consumer credit interest is a tax deduction, and the higher your income the more it's worth to you. It's a direct subsidy to consumer borrowing, and that subsidy currently costs the government $5 billion a year -- which is $1 billion more, incidentally, than the school lunch program. The credit subsidy is not only expensive; it is also bad policy. The administration wants to encourage people to save. So why does it spend $5 billion a year to encourage borrowing, which is negative saving?
If the administration is going to carry out broad tax reductions without running up the federal deficit, it is going to have to go after the tax expenditures. The arithmetic is plain. Defense spending is rising, and the administration has already declared several large entitlement programs -- led by the Social Security old-age benefits, and Medicare -- immune to cuts. That puts about 70 percent of the budget off limits to Mr. Stockman and the economizers. All the cuts are going to have to come out of the remaining 30 percent. Even in that vulnerable 30 percent, the possibilities for cuts are limited.
The federal government is now beginning the most searching reconsideration in the past generation of its budget and the accumulated responsibilities that it represents. To what, ideally, should this process lead over the four years of this presidential term?
It should lead to the minimum budget that most Americans consider consistent with basic security and national responsibilities. It ought to lead to a budget of which every line has been tested and retested in unsparing debate -- a budget that is fitted so closely to the country's prevailing ideas of real necessity that the country will be willing to pay for it. That means a budget that, over the years, will be balanced.
Further cutting would begin to damage the basic fabric of public commitment. Everybody recognizes that this point exists. The present budget debate is a period of exploration to find out precisely where the American consensus puts it.
When that point is reached, and a budget emerges that represents the common idea of the irreducible essentials, how will revenue be found to balance it? If there are to be broad reductions in the income tax rates that everybody pays, there will have to be some substantial decreases in the enormous tax subsidies that go only to some -- and hardly to the truly needy.