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May 13, 1990
"Our Readers Face the Deficit -- And They Don't Blink"
San Jose Mercury News
By Timothy Taylor
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BUDDING lawyers are commonly warned never to ask a question in court unless they are ready to hear the answer. By that logic, when this newspaper printed a survey on Easter Sunday asking for reader opinions on how to reduce the budget deficit, I guess we really wanted to be swamped by the 567 responses, along with dozens of lengthy letters, that poured into the office.

We were impressed, even overwhelmed, by both the number of responses, and by the evident seriousness and thoughtfulness behind them.

In summarizing the responses, I will necessarily do a disservice to their breadth and complexity. If you would like to read more about what individual readers had to say, the "Letters" page in Saturday's newspaper offered a sample of the letters received.

The most common sentiment about cutting defense spending was that people fervently wanted to do more of it. Ralph DeLange of San Jose was more temperate than many: "Even though it is an exciting adventure to tackle the budget (and take about as much time as our esteemed Congressmen must), I am astonished by what I perceive to be the omissions. Maybe the Congressional Budget Office has a different perspective on defense than I've been led to believe, but $38.3 billion in savings by 1993 is hardly the tip of the iceberg. Where is the rest that I have my red pencil poised to emasculate?"

First of all, I should point out that choosing all the cuts offered in the survey would result in cutting military spending by more than one-ninth in the next three years, which isn't exactly peanuts. But the deeper problem is that (for reasons of space) I chose to limit the survey to items that would save at least $1 billion per year in outlays by 1993. Many popular defense cuts may save big bucks five or ten years from now, but the short-term savings are not high. For example, reducing the Strategic Defense Initiative to a pure research program would save $670 million in 1993, according to the Congressional Budget Office. Closing military bases actually costs a few tens of millions of dollars over the next few years, although it would save money in 1995 and after. Limiting production of the Trident submarine to one every other year would save only $360 million in 1993. Canceling the chemical weapons program would save only $90 million in 1993.

The limited menu of ways to cut defense spending reflects the fact that no consensus has yet formed on whether or how major cutbacks in military spending should occur. The response from readers was that such a rethinking is overdue. Entitlements were not a sacred cow to Mercury News readers. A solid majority was willing to reduce the cost-of-living adjustments (COLAs) in Social Security, as well as in other non-means-tested programs like retirement, veterans benefits, Medicare, and so on. Carlyle E. Shoemaker of San Jose put the logic this way: "Nobody's salary should be completely indexed to inflation. Everyone should suffer if inflation is ever to be conquered."

However, there was disagreement about whether to eliminate the COLAs for one year, or to limit them to the rate of inflation minus 2 percent. I used the second to calculate total savings from this plan.

Readers were generally unwilling to tamper in other ways with entitlements like Medicare, block grants, unemployment, employer health benefits, and so on. The one exception was a willingness to require doctors to accept the Medicare fee schedule.

I think the assumption here was that doctors would have to bear the cost of such a requirement, but Elizabeth Heitel of Los Altos Hills pointed out that this is not clear. "I would like to see Medicare reductions," she wrote, "but do not believe this is possible unless the entire health care system is streamlined. Reducing benefits to doctors in this valley would only result in an additional burden on the patients."

Enacting all the agriculture cuts approved in the survey would essentially eliminate all federal support of farmers, and a strong majority of readers felt that was exactly the right goal. "Even though I was a farm boy in the '20s and '30s," wrote Robert A. Weatherup of San Jose, "I feel that agriculture should carry its own weight. We have broad fertile lands and we should not be required to subsidize this segment of our economy."

In a slightly snippier vein, Terry Bezdek of Cupertino argued that agricultural programs "are an anachronism. How about subsidies to people who work only with bronze?"

Only small minorities (less than 30%) wanted to eliminate items of non-defense discretionary spending like the space station, federal grants for wastewater treatment, community development block grants, federal funding for student aid, and assistance to low-income people for home heating bills. The favored options in this category share the theme of making those who use a public resource pay for it.

For example, one favored choice is to charge royalties to users of the electromagnetic spectrum. The Federal Communications Commission allocates licenses for different frequencies. Although it presently charges fees to cover its paperwork costs, a royalty could also be charged on the revenues of those who use the airwaves to make money.

A second favored choice is to privatize the air traffic control system, thus forcing it to charge airline users for the full costs of the system. The final choice of readers in this area was to reduce spending for highways to the current level of tax collections. Since this area has reason to support building roads, this choice seems puzzling. But given the apparent need for local and state initiatives to build roads, perhaps people don't expect much federal money for that purpose anyway.

In examining readers' reaction to proposed revenue increases, the first surprise for me was that no more than a handful of readers took the line of Warren R. Blakley of Morgan Hill, who wrote: "I am opposed to any increase in government taxation at any level."

Of course, many specific types of taxes were rejected. Readers were unwilling to delay or repeal indexing the tax code for inflation. They opposed taxing Social Security. They declined to reduce the tax breaks for home-ownership, either by limiting the mortgage-interest deduction or by taxing some of the capital gain from home sales. They did not support a national sales tax or a tax on net business receipts. Even raising corporate taxes didn't quite receive a majority, although it came close.

A more typical response on taxes came from Greg Samsonoff of San Jose. "I am a registered Republican and can see the attractiveness of the slogan 'No new taxes,"' he wrote, "but the reality of the situation is that the American taxpayer is going to have to bite the bullet and assume some responsibility for helping to correct the current Federal deficit."

The most popular taxes were the so-called "sin taxes" on cigarettes, alcohol, and pollution, which would raise revenue while discouraging socially costly behavior. If George Bush watches the polls as much as everyone claims, the 80 percent majorities for these taxes should catch his eye.

But I suspect that Marguerite Snow of Watsonville was being more honest than most when she wrote, "The whole area of pollution taxation is very tempting, but I must admit to complete ignorance of the effects of such taxes on industry." I need to learn more about this subject myself, but I suspect that taxes on air pollutants, on carbon, and on oil may sometimes overlap in ways that could be hurtful to industry. For the revenue estimates in the table, I've used a 12-cent- per-gallon gasoline tax and the lower level of carbon taxes to try to minimize such overlap.

Readers also favored limiting tax deductions for business meals and entertainment, reducing the write-off for advertising, and repealing the tax credit for doing business in Puerto Rico. These would all encourage business to concentrate on business, rather than on tax breaks.

Two other favored taxes would pump money into the Medicare system, one by requiring that employees of state and local governments pay into the system, and the other by requiring that people pay Medicare taxes on all income.

Readers were willing to raise income tax rates in some way by a nearly two-to-one margin, but they were divided between the five different increases offered in the survey. The most popular was to create a 38 percent tax bracket for the wealthy, but raising the tax brackets to 16 and 30 percent, or just raising the top bracket to 30 percent, were also popular. I've used the third for calculating revenue saved.

One final category offered in the survey was to limit the pay of the federal workforce, but none of those options received a majority. However, many readers expressed a desire to reduce the pay of congressmen. S.M. Weldon of Los Gatos offered a suggestion: "We pay our politicians to make informed and hard decisions, but we are not getting our money's worth. How about giving them salary reductions based on the size of the budget deficit?"

Estimates of the revenue raised by the readers' plan should be taken with a few grains of salt, because the return from enacting the entire package may be less than the sum of enacting each part separately. Nonetheless, some interesting conclusions can be drawn.

First, even with the built-in uncertainty over amounts of revenue, this plan would come very close to balancing the budget in 1993. With all the hemming and hawing over the deficit by our elected representatives, it is truly remarkable that a group of citizens can sit down one Sunday afternoon and endorse a plan that looks reasonably workable.

Of course, newspaper readers are not political or budget experts, but as George L. Quinn, Jr., of San Jose noted: "It is always easier to solve a problem without all of the facts, but sometimes the ideas that the insiders 'know' won't work are the real solutions used by the new kid who just doesn't know any better."

A second interesting conclusion is that most deficit reduction programs will rely on tax increases at the start, and on spending cuts later on. In 1991, for example, about three- quarters of the impact of the deficit reduction plan presented here would come from tax increases. But that proportion falls steadily; by 1995, taxes would be only 55 percent of the total.

Many tax increases tend to have a powerful immediate impact, but decline over time. Tax revenue from cigarettes, alcohol, gasoline, and pollution, for example, would decline as people and businesses changed their behavior to avoid the tax. On the other hand, many spending cuts have a greater impact in the future, as mentioned in the earlier discussion of defense spending.

Many readers had complaints about the survey. Some said it took too long; the typical time spent seemed to be at least a half hour. Others complained that there weren't enough choices, and accused me and the Congressional Budget Office of being part of a plot to keep government spending high. Still others wanted to include options that would save less than a billion dollars, or wanted to know what the consequences would be 10 or 20 years down the road.

As the one who cobbled together the survey, I plead guilty to all these complaints, but claim my moment of self- justification. There was no way to make everyone happy. And if there was a way, I didn't have the strength (or enough friends left) to read and tally too many more responses.

Thanks to everyone who took the time to respond.

The following cuts or tax increases were supported by a majority of readers who returned our survey.

    1. Cancel the B-2 bomber 82%
    2. Cancel the C-17 cargo transit aircraft 51%
    3. Limit independent defense-related R&D chosen by contractor 68%
    4. Freeze operation & maintenance of military plant and equipment 59%
    5. Phase down active-duty military personel by 250,000 by 1995 96%
    1. Reduce some Medicare payments to physicians 66%
    2. Change inflation adjustments in Social Security 55%
    3. Change inflation adjustments in other non-means-tested programs 56%
    1. Reduce target prices for certain crops by 3% per year 64%
    2. Charge farmers an insurance premium for price protection 59%
    3. Require farmers to reduce acreage to get government support 60%
    4. Tie government aid to production, not acreage planted 69%
    1. Charge royalties to users of the electromagnetic spectrum 57%
    2. Make the Federal Aviation Administration a private corporation 55%
    3. Reduce spending authority for highways to tax collections 54%
    1. Raise individual marginal tax rates 64%
    2. Repeal tax credit for doing business in Puerto Rico 62%
    3. Require advertising to be amortized, not written off in one year 54%
    4. Require state, local government employees to pay into Medicare 70%
    5. Subject all income to Medicare tax, not just income up to $51,300 55%
    6. Limit deduction for business meals, entertainment to 50% 73%
    7. Increase oil or gasoline taxes 72%
    8. Raise cigarette tax from 16 cents to 32 cents per pack 86%
    9. Raise tax on alcoholic beverages to 25 cents per ounce of alcohol 82%
    10. Tax nitrogen oxide pollution from stationary sources at $250/ton 85%
    11. Tax sulfur oxide pollution from stationary sources at $150/ton 86%
    12. Tax volatile organic compounds from stationary sources at $1,000/ton 80%
    13. Impose excise tax based on amount of carbon in fossil fuels 66%

If the cuts or tax increases supported by a majority of readers who returned the survey were enacted, here is the deficit reduction that would result. The amounts are in billions of dollars.

  1991 1992 1993
National defense 7.7 17.5 27.0
Entitlements 5.3 12.4 19.3
Agricultural programs 3.1 8.0 8.2
Non-defense discretionary 8.4 9.1 9.6

Source: Estimates of fiscal impact from Congressional Budget Office, "Reducing the Deficit: Spending and Revenue Options," February 1990.

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