U.S. deficit looms large in campaign

THE BALTIMORE SUN

WASHINGTON -- It's the unwanted issue that won't go away. It's the one the candidates would rather avoid, but the non-candidates won't let them. It's the federal deficit, and it hangs over the presidential campaign as menacingly as it overhangs the national economy.

"I believe that people out there are finally recognizing they can't hide from this issue. They can run, but they can't hide," said Sen. Warren B. Rudman, the New Hampshire Republican who is retiring this year in frustration over Congress' inability to solve the nation's economic woes.

There is bipartisan agreement that the deficit must be reduced, but there is also a shared reluctance to confront the problem directly in an election year.

The reason: It involves hard choices, some so hard that the candidate who takes them does so at risk of his political life. Remember Walter F. Mondale? He proposed tax increases in 1984 and lost the vote everywhere except his native Minnesota and the District of Columbia.

Just how hard it would be to reduce the current deficit quickly was best illustrated by the economic program of non-candidate Ross Perot, leaked to U.S. News & World Report after his withdrawal from the race.

Like most other things, Mr. Perot proposed to take the deficit head-on, inviting outcry from special interests and ordinary folk, from rich and poor, had he pursued his campaign.

Under a Perot presidency, up would have gone Social Security taxes, the top federal income tax bracket and federal taxes on gasoline and cigarettes; down would have come Medicare benefits and home mortgage tax deductions. Over five years he planned to raise $300 billion in new taxes. His plan was designed to produce a budget surplus of $8 billion by 1998.

"It's quite easy to be bold when you are not running for election. I expect this will become the measure for bold ideas," said Scott Hodge of the conservative Heritage Foundation.

If Mr. Perot's program has set the standard for deficit-reduction ideas, it leaves President Bush and Democratic challenger Bill Clinton looking comparatively lily-livered. They both prefer to talk about growth, Mr. Bush achieving it through tax breaks for investors and industry, Mr. Clinton through public spending and limited help for the middle class.

"Ross Perot has a deficit reduction program. We have an economic program of which long-term deficit reduction is an important element," said Rob Shapiro, economic adviser to the nTC Arkansas governor.

Mr. Clinton said last week that his economic plan would halve the deficit by 1996. Based as it is on public spending and #F moderate tax breaks for the middle class, the poor and corporations, with only the rich paying more, the deficit is as likely to rise as fall under a Clinton administration unless economic growth is spectacular.

The same can be said of Mr. Bush's program. He has presided over a term during which the deficit has more than doubled. He is refusing to contemplate any tax increases to reduce it, relying on economic expansion to boost revenues.

"Most of these plans to reduce the deficit are depending on a large amount of income growth. The economic growth they are proposing is much higher than it is now and or what it is likely to be over the next several years," said Paul G. Merski, fiscal affairs director of the independent Tax Foundation.

There is as little argument over the cost of continuing high deficits as there is little political will to address them effectively in an election year.

The deficit for fiscal 1992 is projected by the administration to be $333.5 billion and by the Congressional Budget Office to be $368 billion. The latter projection represents 6.1 percent of gross national product (GNP), three times the proportion in the 1970s, when the average budget deficit was 2.1 percent of GNP.

In the 1980s, the average deficit was 4.1 percent of GNP.

Each year the deficit adds to the national debt. This now totals $4.01 trillion, with annual interest payments that ran at $286 billion last year, adding to the deficit.

The net result: Money that could be used for productive investment or savings is earmarked for debt repayment.

But deficit reduction, if done rapidly, also carries a risk of producing slower economic growth and more unemployment. The Perot austerity plan would have generated such negative fallout for the rest of the decade, according to an analysis done for the campaign by DRI/ McGraw-Hill.

Concern over the deficit, however, is clearly growing, according to the Roper Center for Public Opinion Research. In a Gallup Poll in May 1988, 44 percent of those questioned said they were "very concerned" about the deficit. By June of this year, 55 percent thought deficit reduction should have priority over all other national problems.

One long-term development fueling concern: the aging of America. Baby boomers are entering middle age, and by 2020 most will be retired, leaving a smaller work force to cater to a larger retired community.

This is a prospect that prompted a group of young activists last week to launch a campaign to get every federal candidate to sign a pledge not to seek re-election in 1996 unless the 1992 deficit is halved by then.

Congress has twice in recent years taken action to restrain the growth of the deficit, but it has not managed to reduce it.

In 1985, Mr. Rudman and two Senate colleagues, Republican Phil Gramm of Texas and Democrat Ernest F. Hollings of South Carolina, introduced legislation that set targets for bringing the deficit down.

If the reduced targets were not met, funds were to be automatically taken from existing programs. But Social Security and Medicaid, two of the fastest-growing federal entitlement programs, were excluded. Cuts in Medicare were also limited. This left a gaping hole in the restraints. Congress also found fancy bookkeeping tactics to evade the restraints, and the deficit continued to grow.

In 1990, the Democratic-led Congress took another swipe at controlling the deficit. It reached agreement with the Bush administration on spending ceilings and tax controls to achieve $482 billion in budgetary savings over five years.

But the major entitlement programs were again excluded, and although spending on discretionary programs has been restrained, the deficits have grown.

In 1990, when the legislation was passed, the deficit was $123.8 billion. This year, it is expected to be at least $209.7 billion higher.

Richard G. Darman, the administration's budget director, has consistently stressed the need to cap entitlement programs as the key to deficit reduction, but this has so far proved too big a political pill for Congress to swallow. The deficit has also prevented Congress from passing any major package to stimulate the economy out of the recession.

"They can't spend any money. They can't lower taxes. They can't do the type of thing they normally do during a recessionary period. They are strangled by the $400 billion deficit," Mr. Merski said.

Something will have to be done eventually. According to the General Accounting Office, the cost of doing nothing would lead to federal spending's consuming 42.4 percent of gross national product in 2020, almost twice as much as now, to finance ever-escalating interest payments, retirement outlays and health-care costs.

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