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Text File | 1993-04-08 | 6.0 KB | 122 lines

                                                                                COVER STORIES, Page 38

BUSH, CLINTON, PEROT

Shock Treatment



Perot's budget proposal wins raves for its honesty, but many
economists fear the timing is wrong

By JOHN GREENWALD -- With reporting by S.C. Gwynne/Washington,
William McWhirter/Chicago and David Seideman/New York


    Here it comes again, that harsh Ross Perot plan. Whoever
would have expected that a tract on deficit reduction could
captivate people and rank as a best-selling book? In United We
Stand, Perot tells how he would raise gasoline taxes 50 cents
per gal., boost the top income-tax rate from 31% to 33% and
whack 10% out of spending for programs ranging from medical
research to highway construction. The goal of such tough
actions: to slash the federal deficit and balance the budget in
five years. "What Perot has done is to put some real beef on the
table," says Robert Reischauer, director of the Congressional
Budget Office. "It is an important education for the American
people to feel the type of sacrifice needed to bring the deficit
down. Perot is saying, `You want to be serious about fixing
what's wrong? It's going to involve things like this.' "

    But would all this be good for the ailing U.S. economy?
Not right now, say many economists. They concede that the
deficit soaks up savings that could better be used to create
jobs and build new factories. But they contend that an all-out
attack on it next year would take money from people's pockets
and hurt the economy. Acknowledging the point, the Perot camp
says its plan would not take effect until 1994 at the earliest.
Says John White, an Eastman Kodak vice president who was the
principal architect of the plan: "If this economy were to
continue to be like it is, I certainly wouldn't start this plan.
I think you would have to look to stimulus."

    Apart from the question of timing, many experts and just
plain folk welcome Perot's plan as a credible blueprint for
paring the deficit, which is now growing at a runaway rate of
$310 billion a year. Such a program would scarcely pass
Congress, however, because lawmakers embrace fiscal
responsibility in theory but recoil from it in practice out of
fear of angering voters. Yet the plan could take hold if the
U.S. could somehow reach a consensus to divvy up the burden.
"The only way you'll ever get political agreement is to promise
that everyone will share the pain," says Isabel Sawhill, a
budget analyst at the Urban Institute, which studies social and
economic problems. "My reaction is that this plan spreads the
pain quite broadly."

    Perot takes direct aim at the wealthy and the upper middle
class by increasing a host of income taxes. His proposals range
from raising the top bracket to limiting interest deductions on
home mortgages. Economists call such tax hikes "progressive"
because they increase the burden on those with the ability to
pay. And some well-heeled executives say they would go along
with the program. Declares Dan Cotter, chief executive of the
True Value hardware store chain: "If someone came into the
presidency and said, `I need x amount of increased taxes for the
next two years, and all of it will go to reducing the deficit,'
he would get it." Concurs Helene Curtis chairman Ronald Gidwitz:
"Somewhere, somehow, sometime, people are going to give up
things that are important to them, because other things, like
jobs and economic growth, are ultimately going to be even more
important."

    Just as Perot's income-tax hikes are aimed at the
comfortable, so his gasoline and tobacco-tax increases would
sock it to the less affluent. Economists call sales taxes
"regressive" because they take a larger share of income from the
poor and middle class than from the wealthy. Even so, many
experts say these proposals would make good economic and social
sense. The increased tobacco tax would discourage smoking and
reduce the country's $20 billion-a-year medical bill for
smoking-related diseases. At the same time, the hike in gas
taxes would be the largest money raiser in Perot's program and
would help curb U.S. consumption of foreign oil as well as
reduce air pollution.

    Perot gets lower marks for his proposal to save $108
billion by hacking away at so-called discretionary spending.
Critics say his plans are indiscriminate and fail to make tough
choices. Perot would call on federal departments to eliminate
unneeded programs and make 10% across-the-board reductions in
all other activities. "Some of these cuts could be debilitating
to the economy and the fabric of the social system," warns
Reischauer. "You might question how much you want to cut
immigration, the federal prison system, meat inspection, the
Centers for Disease Control and the Securities and Exchange
Commission, just to take a few examples."

    Perot is exasperatingly vague about his plans to save $141
billion by controlling Medicare costs and reforming the
health-care system. He has so far proposed little more than a
federal agency to oversee the reforms and help set a national
health policy. "There's not a single real specific on how we
save $141 billion," says Robert Greenstein, director of the
Center on Budget and Policy Priorities, a Washington think tank.
Says Reischauer: "He says he can make big savings in Medicare
and Medicaid, but he hasn't laid out the areas where those
savings might occur."

    Despite such shortcomings, the Perot plan could well be a
landmark in American politics. "This is the most detailed
austerity program ever put in front of people," says Rudolph
Penner, a former CBO director. "No one else has put together
anything quite like it. It is distinguished mainly by its
honesty." If the program's timing is not quite right and its
chances of political success are negligible, Perot has
nonetheless shown how to attack a budget deficit that will have
to be cut down to size before the U.S. economy can return to
healthy, long-term growth.