A moment of truth is approaching for the Democratic leadership on capitol Hill. In a state of shock ever since President Reagan took the initiative by presenting bold budget and tax proposals, the Democrats in Congress have been sounding more like card-carrying Republicans than the genuine articles.
In the Senate, the president's budget austerity plan, developed by OMB Director David A. Stockman, sailed through by a vote of 88-10, with the Democrats rolling over and playing dead: Only nine Democratic senators out of 47 voted against the Reagan program.
The battle scene has now shifted to the House of Representatives, where the Democratic margin in the last election was sliced from 114 to 51 seats. Understandably, that has given the Democrats a bad case of jitters: Over their shoulders, they can see losing control altogether in the 1982 elections.
What worries Democatic liberals is that the Democratic leadership of the House will concentrate so hard on electing fiscally sound Democrats in 1982 that it will yield up old-fashioned Democratic principles in the process. "In that case," says one labor union leader closely identified with Democratic party politics, "does it make any real difference whether we elect Democrats or Republicans in 1982?"
The evolving Democratic strategy in the House is to shape a more equitable and less-inflationary tax cut than Reagan's Kemp-Roth proposal, thus sharply reducing the deficit of $50 bilion for fiscal 1982 implied in the president's program.
That's all to the good. But the Democrats, according to an alternative plan announced this week by House Budget Committee Chairman James R. Jones (D-Okla.), are embracing the principle of a substantially lesser role for government, endorsing about 75 percent of the Reagan budget-reduction package. They actually propose to spend less than their revised estimate of Reagan expenditures in fiscal 1982.
To be sure, the Jones budget mix would be different, more closely reflecting traditional Democratic priorities. He would save $4.3 billion out of the last defense budget increase proposed by Reagan, and let a bit more trickle into social programs than Reagan had allowed. But even this "fix" -- accomplished also at the expense of the Strategic Petroleum Reserve -- provides much less for education and welfare programs than was contained in the Carter budget for fiscal 1982. Nonetheless, the Jones restorations face a fight from conservative House Democrats led by Rep. Phil Gramm (D-Tex.).
Jones has made a clever strike against the Reagan package, notably puncturing the excessively optimistic economic assumptions that underlie it. He has also made a start -- albeit a modest one -- to clip back the $300 billion worth of "tax expenditures" that subsidize certain kinds of consumption and investment. Some of these "tax expenditures" take care of needy persons. But many of them provide exceptioanl benefits to wealthy people, and the entire list and concept desperately need to be reexamined.
For fiscal 1982, Jones assumes that $3.2 billion can be saved by disallowing, among other things, deductions for commodity straddles, and interest deductions on more than two homes. But one has to wonder whether the Democrats will show any greater political courage than Republicans in going through the entire list of sacred "tax expenditures" cows.
Example: Individuals and corporations will whack $12.3 billion off their taxes in fiscal 1982 for charitable contributions. Of this staggering sum, $1.5 billion is for educational contributions. Sound innocent enough? But as professional fund-raisers know, tax deductions by wealthy donors force the public to come up with what amounts to even bigger matching grants.
Take Walter Annenberg's highly publicized $150 million gift over a 10-year period to public television to improve the quality of education programs. We all want to see public TV survive, right? But if the wealthy Annenberg pays a marginal tax rate of 70 percent, his actual out-of-pocket cost over the 10-year period is only 30 percent, or $45 million. To be sure, that's not peanuts. But the balance of the $150 million "gift," or "105 million, comes from the public, you and me, in the form of a tax concession to Annenberg.
Or take the recent rejection of a $50,000 budget item to refurbish the Reagan White House, in favor of private contributions in excess of $300,000. Even if the average tax rate of these contributors is no more than 50 percent, the public's "matching grant" share is $150,000 -- to say nothing of the obvious personal influence or access to the White House gained by the wealthy donors.
Thus much of our culture that is supported through the tax system allows philanthropists to call the shots, while the public -- which is paying a much larger share -- isn't deciding how its money should be spent. The obvious solution for this (and many other forms of tax expenditures) is to put a "cap" on the amount of deductions any individual can take.