Washington going for broke


Ronald Reagan's flamboyant first budget director, David Stockman, remembers precisely when the federal government went for broke. It was at 2 p.m. on June 11, 1981. At that moment Democrats on Capitol Hill realized that Mr. Reagan would do anything to slash income tax rates. So they started to outbid him and before the feeding frenzy was over America was slip-sliding toward record debt, record budget deficits and record trade losses.

The nation is paying for the profligacy of the Reagan era. The poor have gotten poorer. Middle class real income has stagnated. The current recession lingers in part because governments at federal, state and local levels lack the resources to engage in classic counter-cyclical stimulation.

In this election year, there is a danger the Washington Establishment might throw caution to the winds anyway to fight the recession with spending sprees and tax-cut bonanzas. Liberal Democrats want to open the floodgates in spending no matter what the long-term inflation cost; radical Republicans want to cut taxes and the deficit be damned.

President Bush is not immune to this temptation. His decision to reduce income-tax withholding will inject $25 billion into the consumer economy this year but reduce it by a similar amount next year. That's hardly a formula for good governance. But overall Mr. Bush's proposed $1.52 trillion budget for the fiscal year starting next October was more prudent than might have been expected of a president in danger of defeat at the polls.

He avoided for the time being some of the more excessive fiscal fantasies floating around. He gave lip-service at least to the 1990 budget agreement to cap discretionary spending. He sounded a plaintive call for restraint on runaway entitlement programs such as Medicare and Medicaid.

But after all that, Mr. Stockman's successor, Budget Director Richard Darman, hung out the white flag. In a budget commentary without precedent he retreated from the 1990 agreement, saying the executive branch would consider modifying it so that savings in the defense sector could be used -- not for deficit reduction as the law requires -- but to finance Mr. Bush's proposed $500 increase in personal income-tax exemptions.

If this emboldens Democrats to raid the same fund for spending projects rather than tax cuts -- both at great cost to the deficit -- a repeat of the 1981 debacle may be at hand. Should that happen, the country would be better served if fiercely partisan Republicans and Democrats battle themselves into a bloody impasse rather than wreak further havoc on the nation's economic future.

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