THE TWO GREAT undertakings of this session of Congress, the budget and tax reform, may now begin to merge. The good budget that the two houses adopted last month may not quite do the job. This year as before, the economic and spending assumptions on which it was based are turning out to have been too rosy. Next year revenues are likely to be lower than forecast and the deficit higher than the target in Gramm-Rudman-Hollings, while the Supreme Court has weakened the Gramm-Rudman enforcement mechanism. What to do?
The three broad alternatives are to fudge, cut spending further or raise taxes. A lot of people, taking history as their guide, would bet on the first. There are plenty of ways to blur the problem until after the November elections, and the motive for doing so is clear. But the longer action is put off in a none too strong economy, the harder it may be to act. Members of Congress and voters both understand this.
Election-year rhetoric to the contrary, further spending cuts are not the answer, either. The president's defense request has been cut substantially. That is one of the budget resolution's major accomplishments. The large domestic programs have also been trimmed about as much as they healthily can -- and the small ones don't help that much with the deficit. We are back to a tax increase.
Federal taxes other than for Social Security have declined as a share of the economy in the Reagan years. It is time to rebuild them. The best way may be through the reform bill now in conference. The goal so far has been to keep the bill revenue-neutral; both House and Senate bills are. But because not all provisions would take effect at once, the pattern over the first five years would be erratic.
At one point Senate Majority Leader Bob Dole proposed counting the likely first-year revenue gain from reform as a step toward deficit reduction. The Senate properly resisted on grounds that that was a gimmick, that the first-year gain was needed to offset later-year losses. But what if the conferees tucked a tax increase in the reform bill, to take effect in Year Two?
Congress could then legitimately take account of the first-year revenue gain from reform, as it should anyway for fiscal reasons. The revenue swings in the reform bill would be usefully reduced. The tax increase would blend with reform, making it easier to adopt politically.
The pressures on the conferees so far have all been in the opposite direction -- to give money up, keep the top rate low, have the rate cuts take effect earlier, help the middle class, save the deductions for Individual Retirement Accounts and state sales taxes, not reduce investment incentives, not squeeze hurting basic industries. These need to be balanced off.
The tax conferees are senior members of Congress. The bills they are reconciling go into every corner of the code. They have the opportunity to shore up fiscal policy as well as make the tax code fairer. The country will be better off.