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November 29, 1992 ANGELS MIGHT fear to tread through the complexities of the federal budget deficit, but Mercury News readers are ready to rush in. On Nov. 6, we published "Balancing Act: The Federal Deficit Game," which offered a menu of possible tax hikes and spending cuts to reduce the budget deficit. The game evoked 238 responses from readers, together with another 81 submissions courtesy of the economics classes at Palo Alto High School, and 31 more from an introductory economics class at Cabrillo College. The choices favored by a majority of the 238 readers who responded are listed in the table, together with how much each choice would reduce the deficit. (I tabulated the classroom responses separately, and will discuss them in a moment.) Nearly every submission expressed a willingness to accelerate the current cuts in defense spending. The $5 billion in savings listed here represents moderate cuts, costing perhaps 23,000 active and reserve jobs. But half of those favoring defense cuts would have gone further, and supported slashing an additional $15 billion in defense spending next year. Interestingly enough, no majority emerged for canceling particular weapons, like the B-2 bomber or the Seawolf sub. Instead of cutting hardware, readers seemed more interested in cutting personnel, or delaying Star Wars. So-called "sin taxes" on items like cigarettes and alcohol were very popular. More surprising, was that a hefty majority supported a $5-per-barrel tax on oil. Politicians have tended to dismiss oil or gasoline taxes out of hand, despite the triple advantage of raising revenue, cutting pollution, and reducing dependence on foreign sources of energy. Even though mail-in surveys like this one have no pretense of scientific validity, perhaps this issue is one where politicians are lagging behind an emerging popular consensus. Foreign aid was notably unpopular as well, although some readers expressed a desire that pure humanitarian aid should be continued. By relatively close majorities, readers also favored welfare cuts, a surtax on millionaires, and a freeze in discretionary spending. Total savings from this package would be $65 billion, which would be a spectacularly good start on reducing the $300 billion budget deficit. The student reactions were largely similar to those of other readers, with a few intriguing differences. The Palo Alto high school students did not support alcohol taxes (?!) and showed little willingness to freeze welfare or discretionary spending. In addition to those reactions, the Cabrillo students were not nearly as supportive of income tax increases, even those focused on the wealthy. Many readers sent letters and comments on the game, some of which were published on yesterday's Letters page. Some expressed a willingness to face personal pain if it would help to address the deficit. After listing her proposed changes, Wanda Avery of Fremont noted: "My husband receives Social Security and worked all his life in the defense industry, so we are not above pain. Two of our sons work in defense industry." Edward Szetela of San Jose wrote, "I am middle class, and cutting the Seawolf would probably make my aunt get laid off. The gas tax would break my uncle, who is a truck driver, but something must be done." Other readers suggested alternate ways of reducing the deficit. Dee Thatcher of San Jose, for example, would limit mortgage interest rate deduction and look for loopholes used by the rich. Mike Arnaz of Fremont sent a list of alternate suggestions, including cost sharing on foreign military bases, more efficient operation of government, and eliminating farm subsidies. Cutting the pay and fringe benefits of the president, Congress, and federal civil servants was a very popular suggestion. Les Tremayne of Sunnyvale suggested taxes on guns and ammunition. Thomas Hernandez of Menlo Park offered a truly radical suggestion: Eliminate Social Security payments to those with above $60,000 in income. Many readers noted that they would be willing to push harder in certain areas: higher taxes on oil and millionaires, greater cuts in defense and foreign aid. But of course, aiming higher makes it more difficult to get majority support. The game also offered an (admittedly somewhat arbitrary) estimate of the "political cost" of each tax hike or spending cut, and which interest groups would be most heavily affected. About a dozen readers pulled out their calculators and spreadsheets to figure out what was the least political pain possible in achieving given levels of savings, and what were the greatest savings possible given different levels of political pain. For example, John Freeman of Los Altos and John A. Tomlin of Sunnyvale pointed out that a package of raising income tax rates, gasoline taxes, and cutting foreign aid achieved $40 billion in deficit reduction while keeping the political cost quite low. Others argued that political cost was part of the problem. Nancy Teeter of San Jose said, "Political cost is only important to career politicians. Let's get rid of career politicians and elect those people willing to make tough decisions and get the public behind them." After recommending dramatic deficit reductions, Bernie Hoyt of San Jose assessed his political future this way: "So I only serve one term. OK by me." The student responses were especially acidic on the issue of the political system they are inheriting. But the greatest argument over political costs, and the greatest weakness of the budget game, lies in the treatment of entitlement programs like health spending and Social Security. L.J. Shulman of Sunnyvale voiced a common complaint: "I think your test has way overestimated the political cost of reducing Social Security. People are beginning to see the fact that we are taking care of elderly at the expense of poor people, mainly women and kids." In addition, the game offered no spending cuts involving health care, although it is projected to be the fastest growing area of federal spending in the next few years. When readers spoke of the need to control pensions and health spending, the most common phrase they used was "political suicide." Although I have nits to pick with some of the proposals, I would support the $65 billion deficit reduction package identified by readers. But that plan is only a start, albeit a very worthwhile start. The deficit is now hovering at around $300 billion, and major sources of growth in spending are health and Social Security. To control the deficit, it will be necessary to find the political will either to cut benefits for those programs, or raise the taxes to pay for them.
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© 2010 Timothy Taylor |