President George Bush's 1992 budget is a reminder of the fraud of Reaganomics. Proposed tax revenues are just over 19 percent of gross national product, exactly the size they were during the Jimmy Carter administration. And this is no aberration. During the previous decade they averaged 18.9 percent. Federal government spending, likewise, was averaging 22 percent of GNP during the Carter years, crept up past 23 percent in the Reagan era and will hit 25 percent -- including the savings and loan bailout -- in 1992.
In short, the Republican regime has not cut federal spending and has not cut federal taxes. What it has done is to shift the tax burden from the affluent down toward the middle and lower classes. The primary vehicle has been a spectacular increase in the Social Security tax.
Sen. Daniel Patrick Moynihan, D.-N.Y., is back again this year with his nettlesome proposal to correct this abuse. Last year it got 54 votes in the Senate, but needed 60 on a technicality. Mr. Moynihan would cut the employee and employer shares, now 6.2 percent each (plus another 1.45 percent for Medicare) by 1 percent. The average family would ultimately save several hundred dollars a year.
The case is familiar. The Social Security levy is regressive: a flat tax on wages up to middle-class levels. Wages over $53,400 are exempt. Investment income is exempt. There are no exemptions for low-income workers, who pay on dollar one. Social Security revenues are being misused to finance general government expenses: $83 billion worth in 1992, $126 billion by 1995. Supposedly these are "loans from a trust fund" that will pay for retirements in the next century. But the reality of that trust fund depends on the willingness of future workers to tax themselves to pay off the loans -- exactly what they would have to do to pay retirement benefits directly if the loans didn't exist.
This year's case has a new feature: the recession. The Social Security tax is a direct burden on jobs. Also, lower-income people spend more of their money than the affluent. For both these reasons, a Social Security tax cut would be a better stimulus than Mr. Bush's beloved capital gains cut, which also has been repackaged as a recession therapy.
It's a great issue for the Democrats. There's just one trouble: Where does the money come from? Mr. Moynihan's scheme would cost $160 billion over five years. One almost-good-enough answer is: not our problem, sweetheart. Let those who exploited this abuse say how to replace the money once it is corrected. Politically, the charge of irresponsible pandering through tax cuts will quite rightly stick in most Republican throats. Mr. Bush's formulation that "Democrats are messing with Social Security" is a clever fudge, but not clever enough.
But some Democrats are boy scouts. So here's an alternative for fiscal responsibility buffs. Remember John Anderson? The centerpiece of his independent presidential candidacy in 1980 was a proposal for "a 50-cent gasoline tax, rebated" to citizens by cutting the worker's share of the Social Security tax in half. Unfortunately, seven increases in the Social Security tax since that time have increased the maximum annual payment by two-thirds, after inflation. But a 32-cent gas tax would still finance Mr. Moynihan's $160 billion Social Security tax cut.
The case for a gas tax is also familiar. Gasoline is a clear example of what economists call "externalities": every gallon you consume imposes costs on society as a whole as well as on yourself. The Persian Gulf war makes the point vividly, and there's pollution as well. Mr. Bush's chief economic adviser, Michael Boskin, recently touted "market and market-type mechanisms" as the best way to make government policy. There vTC is no better illustration of a "market-type mechanism" than a tax that restrains demand by forcing a consumer to absorb the social costs of his consumption. Every other major industrial country understands this. In Germany, Japan, France, etc., gasoline costs three times or more what it costs here.
Gasoline prices peaked in early December at $1.38 a gallon. They're now down to around $1.13 -- even after a laughable nickel-a-gallon tax increase that came in at the New Year. You could pay for the Moynihan tax cut with a gas tax that would barely put prices back where they were three months ago. If ever there were a moment when the cost of our national gas habit is obvious, when the national willingness to sacrifice for the greater good should be awakened, and when the actual sacrifice required should seem minimal, this is it. Yet our craven leaders don't dare ask.
Combining a gas-tax increase with a Social Security-tax cut might alleviate the need for courage. And the two fit together nicely. A gas tax is regressive; cutting the regressive Social Security tax cancels this effect. A Social Security-tax cut costs money; a gas tax brings it in.
Of course combining these two ideas also undermines the advantages of each. A regressive gasoline tax cancels out a progressive Social Security-tax cut, as well as vice versa. And spending a gas tax on a tax cut uses up revenues that could reduce the deficit. But you can't have everything. In fact, given our present politics, you probably can't have any of this, let alone all of it.
Michael Kinsley writes the TRB column for the New Republic.