BY JACK BEATTY
THIS YEAR CONGRESS CAN MAKE HISTORY BY drawing up the first post-Cold War budget. It can miss its chance, of course, and continue with business as usual; and with polls showing that over 60 percent of Americans support the current level of defense spending ($291 billion), our politicians would not seem to have much political incentive to be statesmen. But the polls also show that growing numbers of Americans want this country to respond to the worldhistorical developments of what deserves to be called the Gorbachev era with something that matches them in scope. It’s hard to see what that could be in foreign policy—after all, we have no Berlin Wall to tear down. To be sure, a strategic-arms-reduction treaty and a treaty reducing conventional arms in Europe would be signal achievements, and maybe if both treaties had already been signed, they would satisfy our wish to make the most of this historic moment. But perhaps looking for ways to match Gorbachev in foreign policy is missing the point of Gorbachev. As Paul Kennedy has argued, Gorbachev is the only practitioner of “grand strategy” on the contemporary world stage, and the essence of his strategy is a manifest willingness to subordinate foreign and defense policy to the domestic necessity of making the Soviet economy work. Just when what Kennedy calls “the metric of power” in world politics has begun to shift from military force to economic potential, the Soviet Union has been graced with a leader who appears to understand that shift, and who is embarked on a desperate gamble to restore the greatness of his country. Gorbachev’s grand strategy makes possible the kind of change in our own national strategy that would have been unthinkable at any other point since the Cold War began.
The United States today faces no external threat from a rising “challenger state.” The main threats to our international position are domestic in kind; they are to be found in the debt-ridden condition of the economy and the deteriorating state of so much of our physical and human capital. This is the realm in which we must establish our strength, for it is here that we will be tested in the post—Cold War era. The metric of power points home, and it is this new idea of strength that the White House and Congress have the chance to codify in the budget they are preparing now. They have a choice, really, between Cold War and postCold War ideas of strength, between yesterday and tomorrow. What follows is an outline of some of the choices open to them—and us.
WE COULD BUILD THE STEALTH BOMBER. AT nearly $600 million per plane, the Stealth is notoriously exorbitant. It represents the Air force’s attempt to keep the manned bomber alive in the age of the cruise missile, or pilotless flying bomb. As such, it is an exercise in nostalgia, one that could easily cost $79 billion—the “if all goes well” cost of the 132 planes requested by the Air Force. So far, Congress has spent $22 billion on the Stealth. What has all this money been for? It’s dismayingly hard to tell. “The mission [of the Stealth] changes just about every week,” says Representative John Kasich, an Ohio Republican who wants to kill the weapon in its gilded crib.
One mission is to hunt Soviet mobile missiles—but right there, having written those words, “hunt Soviet mobile missiles,” I must stop and take a little detour. With freedom breaking out in Eastern Europe, the abstract logic of nuclear strategy, always absurd, looks downright ludicrous. The idea of nuclear war between the superpowers has never seemed so divorced from history as it does today. Thus arguments such as I am about to advance—arguments against weapons systems which are based on strategic need and military efficiency—run the risk of looking beside the point. Since peace is at hand, why bother with these prepeace categories? In a recent interview French President Francois Mitterand gave a good answer to that type of question when he said, “If Mr. Gorbachev were to fail, nothing can guarantee that a new Soviet power—which might not be Communist—wouldn’t still be military and totalitarian.” That new Soviet regime, it is necessary to remind ourselves, would still have more than 10,000 nuclear warheads targeted on the United States. Marshall Goldman, of Harvard’s Russian Research Center, thinks that Gorbachev has at most only three or four years left; a high European official at NATO headquarters predicts, “Unless he arrests the economic decline, he won’t be there in two years.”Cutting weapons systems on the grounds that Gorbachev has permanently halted the military competition between the superpowers might thus be letting the wish be father to the policy. We should cut them because we didn’t need them before Gorbachev came to power, we don’t need them with Gorbachev in power, and we won’t need them if Gorbachev should fall from power.
To resume: one mission for the Stealth is to hunt Soviet mobile missiles. Leaving aside whether that would be a mission impossible (it probably would), attacking the Soviet mobile missiles would be a mission undesirable. Each side needs an assured survivable force to secure deterrence. We have one in our ballistic-missile-carrying submarines; the Soviets have one in their land-based mobile missiles. To threaten the other side’s survivable force is to raise the specter of a successful first strike in which you will disarm his only means of retaliation, putting him under remorseless pressure to use his retaliatory weapons against you first or lose them.
Once you see the fallacy of this so-called counterforce strategy—that putting your adversary’s deterrent force at risk reduces your own security—the responsible course is not just to stop a particular weapons system but to abolish a whole function for future weapons systems. For, inevitable, Stealth will have its “follow-ons.”Inevitably, leaks from the CIA will hint that the Soviets are fielding “a new generation of anti-Stealth weapons.”Inevitably, there will be a “Stealth gap.” And, inevitably, the taxpayers of the future will be called on to redeem the $80odd billion already spent on Stealth with yet more billions for improvements, modifications, enhancements, or replacements for a system that should not exist to be improved, modified, enhanced, or replaced in the first place.
OR WE COULD INSURE THE MEDICALLY UNINSURED. Some 30 million to 37 million Americans fall into that category, and approximately 15 million every year are denied medical care because they cannot pay for it. Most of them hold down the kind of low-wage, nobenefits jobs that burgeoned in the 1980s. They are the people who deliver our papers, pump our gas, grill our hamburgers, carry our luggage, and care for our children. It is not their fault that they are trapped in sectors of the labor market that can’t afford either to provide them with medical insurance as a fringe benefit or to pay them enough to insure themselves. And the work they do is socially necessary. Extending medical insurance to them as a form of social insurance would be a way of recognizing that. It would, to use a hoary word, be “just.” It would also be expensive— estimates range from $25 billion to $50 billion a year. That sum would have to come out of taxes, but it would be only a small fraction of the $600 billion this society will spend on health care this year. And though it would be a dreaded “new social program,” in the long run it would cost less than the system we have today. Society now does nothing for the pregnant teenage girl who avoids going to the doctor because she has no medical insurance. It patiently waits for her to present herself in the delivery room, and then spends $300,000 saving the life of her premature baby—a tragically shortsighted and profoundly wasteful result. Insuring the uninsured thus would strike a blow not only for social justice but also for economic efficiency.
WE COULD CONTINUE TO BUILD AND DEPLOY THE Trident II submarine-based ballistic missile. Tom Downey, a Democratic congressman from New York, says, “the Trident II will be the single most destabilizing first-strike weapon ever built.”He may be right. Depending on how it is armed, each Trident II can be almost five times as destructive as the Trident I missiles now carried by our submarines. The Trident II will not only be superpowerful; it will be superaccurate, and thus able to hit and destroy Soviet missile installations. Its combination of destructive power and accuracy, when added to the quality of near-invulnerability conferred on submarine-based weapons, makes the Trident II a potential first-strike threat, one that would put Soviet nuclear forces under even greater “use it or lose it” pressure than Stealth. Trident II would force the Soviets to put their retaliatory forces on hair-trigger alert, and that would increase the danger of the only kind of nuclear war imaginable between the superpowers: an accidental one. From 1977 to 1984 there were more than 20,000 false indications of Soviet attacks on the United States; they must have had as many such indications from our side. Canceling Trident II would not only save $18 billion over ten years; it would absolve future taxpayers from the painfully unnecessary task of paying for Trident III.
OR WE COULD RETURN FEDERAL AND TO EDUCATION to its 1980 level in percentage terms. Back before the advent of the Reagan Administration the federal government devoted 2.5 percent of its total spending to education; in 1989 the amount was 2 percent, or $22.8 billion. President George Bush originally proposed increasing education spending by $441 million, which may sound like a lot of money but is in fact $110 million short of what Michael Milken made in salary in 1987. To return federal spending to the 1980 percentage, the President would have had to top Milken by $5.5 billion.
What could we accomplish in education by according it the same priority it enjoyed ten years ago? We could, to begin with, fully fund Head Start, a program of enriched learning for poor pre-schoolers whose tonic effect on student achievement has been demonstrated in study after study for twenty years. Currently only 451,000 of the country’s 1.7 million poor children are enrolled in Head Start. For about $1.2 billion more a year Head Start could be expanded to cover all eligible children for at least one year.
We could also serve every child eligible for aid under Chapter I of the Elementary and Secondary Education Act of 1965. Eight million children living in low-income census districts are theoretically eligible to receive the compensatory education called for under Chapter I, but in practice fewer than five million are getting it now. Under Chapter I, for $700 per child per year children who are at risk of repeating their grades receive remedial teaching. Every time a child repeats a grade, it costs the taxpayer $3,500, on average. Thus Chapter I doesn’t just pay for itself; it saves the taxpayers money. Expanding Chapter I would cost nearly $3 billion. Former President Reagan has disparaged the idea that there is a convincing correlation between investment in education and a wider social gain. Yet a study done for the Committee for Economic Development found that money invested in education in fact paid off in the range of 7 to 11 percent after inflation.
Finally, if the level of federal aid to education were returned to what it was in 1980, more poor and middle-income young people could go to college. In 1979 Pell grants paid for 50 percent of a poor recipient’s college costs, on average; now they cover only 29 percent. In a reversal of an encouraging trend of the 1970s, fewer and fewer young black men are going to college; the decline in federal support coupled with the rise in college costs is a big part of the reason why.
WE COULD BUILD THE MOBILE LAND-BASED MISsile known as Midgetman. In The Atlantic last year R. James Woolsey, who is now President Bush’s chief conventional-arms negotiator, likened the Midgetman to a pair of suspenders backing up the belt of our submarines. In fact, we already have one pair of suspenders: our fleet of manned B-52 and B-1 bombers. How much should a man with a perfectly good belt (in congressional testimony a spokesman for the CIA said that that agency didn’t believe the Soviets could deploy any effective threat to our submarines in the 1990s) and a perfectly good pair of suspenders be willing to pay for another pair of suspenders?
The projected cost of Midgetman is a sobering $30 billion plus. This small mobile missile is supposed to remove from the minds of Soviet planners any idea of mounting a first strike. The question is, Without the land-based mobile missile, are we vulnerable to such a first strike? Joshua Epstein, a defense analyst at the Brookings Institution, has calculated that even if the Soviets mounted a “perfect first strike"— one that destroyed all the 1,000 land-based missiles we have deployed, all the bombers on all our bases around the world, and all the missile-shooting submarines in port— the 50 percent of our submarines that are always at sea and the 30 percent of our bombers that are always on alert could still unleash more than 4,000 warheads on the Soviet Union. Having assumed the incredible in his worst-case thought experiment, Epstein goes on to posit the unimaginable. Suppose, he says, that the same Soviet air defense that could not stop a West German teenager from landing his Cessna in Red Square managed to mount a “perfect" air defense, knocking out all our bombers and all the cruise missiles they fired. In that worst of worst-case scenarios, 2,800 warheads from our missile-carrying submarines at sea would still fall on the Soviet Union. Epstein has asked senators and congressmen who favor Midgetman to tell him why the certainty of 2,800 warheads falling on the motherland is not enough to deter the Soviets. “They can’t even name enough targets tor the twenty-nine hundred warheads,”he says, “yet they want to add more. We don’t need Midgetman to deter a Soviet attack. We don t need it, period.”
OR WE COULD HELP TO REINVIGORATE THE POLISH economy and give a fillip to Polish democracy. The Poles asked President Bush for $10 billion; he offered them $100 million. That pathetic response is a portent of America’s decline as a great power. Poland, after all, is seeking to move from dictatorship to democracy, and from a command to a market economy. Two billion dollars from the United States now, coupled with the $8 billion in loans from the West as a whole that such a grant would make possible, would allow the Solidarity government to put the Polish economy on the path to self-sustaining economic growth. By giving the government the wherewithal to pay unemployment and resettlement allowances to workers displaced by the wrenching economic transition that Poland must undergo, an infusion of something more than what Senator Daniel Patrick Moynihan has derided as “walking-around money" would even help to legitimize democracy to the Poles. Yet a few million is all that an administration that wants to build the Midgetman and the Trident II and the Stealth bomber can do.
And we could cut cocaine production in Bolivia by 35 to 40 percent; that could be done with about $2 billion over three years, according to Jeffrey Sachs, a Harvard economist who has studied the problem. In 1986, before stopping drugs became the public’s No. 1 demand of the federal government, Bolivia asked the Reagan Administration for money to finance a program of crop substitution and allied economic development. Pleading Gramm-Rudman limits on spending, Secretary of State George Schultz turned the country down. Suppose he had said yes. How much of the crack now tormenting mean streets from New York to Los Angeles would never have gotten into the country? Three hundred thousand Bolivian peasants work in the coca fields for their daily bread. The Bolivian government says that $2 billion from the United States, plus the loans thereby encouraged from others, would help it give those peasants a licit alternative to starvation. But the Bush Administration has asked Congress for only $261 million in military aid for the Andean countries (Peru, Colombia, and Bolivia) for fiscal 1990, and no economic aid at all until 1991.
And we could end the Third World debt crisis. That would take $5 billion, Jeffrey Sachs estimates. Under Sachs’s plan the United States would withdraw $5 billion from the Treasury and place it in an account to guarantee interest payments to banks willing to make new loans to countries like Mexico and Brazil. But no money would actually be lost to the Treasury unless those countries defaulted on their loans, an eventuality that Sachs contends is unlikely. Thirty-nine countries with a total population of 850 million could thus be put on the road to recovery.
WE COULD BUILD THE STRATEGIC DEFENSE INitiative—at a great price not only in dollars (the research and development costs alone of SDI could run to $50 billion in the 1990s) but also in peace. The Soviets have agreed to go ahead with START, an arms-reduction treaty that would cut the long-range nuclear-weapons arsenals of the superpowers by half. They are reserving the right to break out of that treaty, however, if the United States goes ahead with SDI testing or deployment that violates the antiballistic-missile treaty of 1972. This stipulation probably dooms the more robust versions of SDI that were floated a few years ago, because it is unlikely that a majority of congressmen would vote to fund a program that would cause the Soviets to break out of a signed and ratified treaty. Even so, the House voted to spend $3.1 billion on SDI research last year, while the Senate voted $4.3 billion. In the promiscuous way of our politicians, they are apt to keep voting comparable sums for years, until SDI becomes a mortal threat to START, at which time they will pull the plug on SDI, having spent who knows how many billions to provide themselves with political cover and to ensure a steady flow of money from the political-action committees of defense contractors. Already SDI has absorbed $21 billion since Ronald Reagan launched the program, in 1983. That is enough. SDI was originally supposed to protect the U.S. population from Soviet attack. No one believes that is possible anymore. Now SDI is thought of as a system of partial defense for U.S. missile sites. It would strengthen deterrence, its proponents claim, by “complicating" Soviet attack plans. But do these plans need any more complicating? We have seen that even after a “perfect" Soviet first strike and a “perfect” Soviet defense against our retaliation, 2,800 warheads would be available to make the rubble bounce. Surely those 2,800 warheads constitute an inexorable complication. Congress should continue to fund research into the feasibility of defensive systems, but at about the rate devoted to this sort of deus ex machina before fear of Reagan and lust for PAC money made Congress back the escapist folly of SDI. A billion dollars a year should do it.
Would the elimination by this Congress of all funding for Stealth, Trident II, and Midgetman (along with its big brother, the rail-mobile MX: savings, $10.3 billion), and the reduction of SDI to the status of a modest research program, hamper the administration in the strategic-arms-rcduction negotiations with the Soviets? Not to put too fine a point on it, no. The Soviets don’t need the prod of U.S. bargaining chips to complete negotiations on START. Their collapsing economy gives them sufficient incentive to negotiate. In any case, it is most likely not the Soviets who have been holding up START but rather the U.S. Navy, which has had trouble making up its mind whether and how to ban nuclear-armed sealaunched cruise missiles. These so-called SLCMs, which, as noted in these pages a year ago ("Reagans Gift,” February, 1989, Atlantic), constitute one of the chief obstacles to START, are the bargaining chips of arms negotiations past—only they were not bargained away but retained, to bedevil future efforts to work out verifiable arms-reduction agreements. The Pentagon uses bargaining-chip arguments to co-opt the arms-control lobby into supporting new weapons systems. The congressman who votes for systems like Stealth and Midgetman on bargaining-chip grounds is using the cant of nuclear diplomacy to mask his real, pork-barrel motivations.
WITH A BILLION OF THE $2 BILLION FREED UP BY restraining SDI research, we could establish a national Police Corps. A Police Corps could add as many as 100,000 officers to overstretched police forces around the country. Enrollees would receive four years of guaranteed federal loans to cover college costs of up to $10,000 a year. In return, the 25,000 men and women selected each year, many of them members of minorities, would be expected to fulfill a four-year commitment to their local police force. When their term of service was over, the government would pay off their college loans. Since there are now 488,000 local policemen, the Police Corps would increase their ranks by an impressive 20 percent. “More significantly,” Albert Hunt writes in The Walt Street Journal, “as the graduates would be placed almost exclusively on foot patrol, and not add to the police bureaucracies, the proposal should increase cops on the front lines by about 40%.” The ratio of police officers to violent crimes has been tilting ominously toward violent crimes. In 1951, for example, there were 1,229 police officers and 361 violent crimes in the city of Buffalo, whereas in 1988 Buffalo had 970 police officers and 3,555 violent crimes. The strategic defense initiative will not defend the citizens of Buffalo. The Police Corps will.
WE COULD CONTINUE TO SPEND UPWARDS OF $150 billion every year defending Europe, the world’s largest economic entity. Under the terms of the conventional-force-reductions talks now under way, the Warsaw Pact would cut its forces in the Atlantic-to-Urals theater (Eastern Europe and the western military districts of the USSR) by 40 percent, but NATO would cut its forces by only 10 percent. That won’t save the American taxpayer much money. Joshua Epstein, of Brookings, addresses that problem in a plan he has presented at the Pentagon and on Capitol Hill. He has discovered something that other commentators have missed about the current talks: when forces designated for Europe but based in the United States are included, the proposed agreement will give NATO what NATO has never sought and does not need—quantitative superiority over the Soviets in two vital weapons categories, tanks and armored personnel carriers. NATO already spends $130 billion more than the Warsaw Pact countries every year to ensure that it retains its qualitative superiority in weapons. But NATO would need quantitative superiority only if it intended to invade Eastern Europe, and it has no idea of doing such a fantastic thing as that. Epstein recommends that NATO divest itself of this embarrassment of riches. He would follow up the conventional-force-reductions talks with negotiations about a further 50 percent cut on both sides. He would then make a unilateral cut by demobilizing the National Guard reinforcement brigades for the forces we would be withdrawing from Europe. The 50 percent cut on top of the 10 percent cut plus the unilateral cut in the National Guard would save at least $20 billion, every year. And it would leave NATO “much better off" defensively than it is today, Epstein claims. That is because with each cut in the size of the Soviet forces, the chances of a successful blitzkrieg attack on Western Europe, a project fully as fantastical as a Western invasion of the East, rapidly approach the infinitesimal.
WITH THE $20 BILLION ANNUALLY TO BE SAVED from NATO, we could make a down payment on the rebuilding of our infrastructure. It is in bad shape, our infrastructure. To see why, you have only to compare yesterday with today and the United States with Japan. In the 1960s we devoted 2.2 percent of all government spending to infrastructure, whereas by the late 1980s the level of investment had slipped to one percent. From 1973 to 1985 Japan spent five percent of its annual output on infrastructure, and it enjoyed an average productivity growth of 3.3 percent. Over the same years, the United States spent 0.3 percent on infrastructure, and it enjoyed—if that is the word—a 0.6 percent increase in productivity. Looking at these figures, David Alan Aschauer, of the Federal Reserve Bank of Chicago, concludes that government spending on infrastructure construction and maintenance spurs economic growth. And conversely: of the total U.S. productivity decline of 1.2 percent since 1970, fully one percent can be attributed to the neglect and deterioration of infrastructure, according to Aschauer. We need to invest $40 billion to $50 billion annually for a decade or more just to restore our extant physical capital. The Department of Transportation, to cite a resonant example, reports that the proportion of bridges that are defective rose from 10.6 percent in 1982 to 15.9 percent last year. Other estimates run as high as 40 percent. Maintenance work on bridges and on the interstate highway system will cost $300 billion over the decade.
Other vital infrastructure spending includes $25 billion for the modernization of the air-traffic-control system, $20 billion for the renovation of the existing stock of public housing, $200 billion for the cleanup and modernization of fouled nuclear-weapons-production facilities, and $15 billion for state-of-the-art computers and a new long-distance phone system for the government.
The bridge that does not collapse, the air-traffic-control system that manages to land planes safely, the highway whose potholes do not break your rear axle— these prosaic achievements of government will not make any headlines. But in this essential though unheralded realm prudent investment could make an enormous difference to our children.
WE COULD CONTINUE TO STATION 31,000 ARMY AND 12,000 air force members in South Korea, at an annual cost of $2.6 billion, thirty-five years after the end of the Korean War.
Or we could withdraw 10,000 of them, saving $600 million every year. Senator Dale Bumpers, an Arkansas Democrat, has called for such a troop cut. Bumpers points out that South Korea now boasts a GNP seven times as big as North Korea’s, and a population twice as big. With the trade surplus it runs with the United States every year, South Korea can afford to pay more of the cost of its own defense.
With the money we would save by bringing home some of our soldiers from South Korea, we could expand WIC, the supplemental-food program for women, infants, and children. Currently 7.3 million women are eligible for food and medical care under the income criteria of this program, but only 4.4 million are served by it. They are served well. For $40 a month a poor pregnant woman enrolled in WIC is given access to nutritious food as a medical prescription—in other words, to get the food, she has to see a health-care professional, who provides her with nutritional counseling and helps her find prenatal care. The program works: it increases the birth weight of babies. It also saves taxpayers money. Studies have shown that every dollar spent on the prenatal component of WIC actually saves three dollars in that same year, since caring for a low-birth-weight baby in a neonatal clinic can run anywhere from $2,000 to $10,000 a day. WIC now costs $2.1 billion; for a billion more, it could be expanded to serve all the women eligible for it.
WE COULD MAKE NO CHANGES IN SOCIAL SECURITY or military pensions.
Or we could make substantial savings that would be relatively painless to pensioners and simple in every respect save the political. Under current tax law individuals with incomes of more than $25,000 and couples with more than $32,000 pay taxes on 50 percent of the Social Security benefits they receive. If they paid taxes on 85 percent of their benefits, that would generate $18 billion over five years. If those income thresholds were eliminated (a course not recommended here), $97 billion could be raised over the same period.
A change in the pensions of federal retirees could be almost as lucrative. Military retirees now get full pensions as soon as they leave the service—lor many, in their early forties. Nearly all of them take new jobs, and their pension income on top of their salaries places 80 percent of them in the top two fifths of the population in earnings. Every year these well-off retirees receive full automatic cost-of-living adjustments in their pensions. If these COLAs were cut in half until the military retiree reached his sixty-second birthday—if, that is, instead of receiving a four percent increase in a year when inflation was four percent, he got a two percent increase—the Treasury would gain $5 billion annually within five years.
With the money saved through these reforms, we could end hunger in America. Some 20 million Americans go hungry sometime each month, according to J. Larry Brown, the chairman of the Physician Task Force on Hunger in America. There are half a million to a million malnourished children in America. Some 32 million Americans live below the poverty line (a measure directly tied to what it costs to feed a family), yet only 19 million Americans receive food stamps, the largest federal food program. No other Western society is so haunted by the medieval curse of hunger.
To feed the hungry would cost $4 billion to $5 billion over the $21 billion we already spend on food stamps, WIC, school breakfast and lunch programs, federal food programs for the elderly, and a few other small food-aid programs. To put these costs in perspective: for two days’ subsidy of NATO, or one Stealth bomber, we could ensure that more than one million babies will not be born malnourished.
Because Social Security and military pensions bulk so large in the budget, we could also begin to house the nation’s homeless (estimates of their number run up to three million) on the money freed up by these two modest reforms. A recent study found that 45 percent of all poor renter households pay 70 percent of their income in rent. And those incomes are poignantly small. “With median incomes of less than $100 per month or about $3.25 per day,” writes one researcher on homelessness in Chicago, “even trivial expenditures loom as major expenses; for example, a round trip on Chicago’s bus system in 1986 cost $1.80, more than half a day’s income.” Meanwhile, the wait for subsidized apartments in public housing averages five years. Experts on homelessness say that high rents, coupled with the small supply of subsidized housing, are the leading cause of homelessness. For an additional $17 billion to $19 billion a year the cost of rental housing for the poorest Americans could be reduced to 30 percent of their income. The program could be means-tested (like Medicaid) and be administered using vouchers, which the recipients would present to their landlords. It would not only reduce homelessness today but also restrain its future growth. Experts say that unless something is done, the federal government’s failure to fund new public housing in the 1980s, combined with the gentrification of urban neighborhoods that were once America’s Skid Row, will create an epidemic of homelessness by the turn of the century.
WE COULD CUT THE CAPITAL-GAINS PAX FROM ITS current rate of 33 percent to 19 percent, as the Bush Administration and many congressional Democrats want to do. That would increase the deficit by some $70 billion over the next decade.
Or we could raise the capital-gains tax at death and close loopholes for business and the wealthy. Thanks to Reagan-era changes in the law, heirs can escape paying taxes on the capital gains on their late parents’ estates. As much as three quarters of capital gains thus go untaxed. Making heirs pay the same rate of taxation on their parents’ unearned income as other taxpayers pay on their earned income would bring the Treasury upwards of $5 billion every year.
Then there is the 80 percent free lunch; it could be made only 50 percent free. Businesses can now write off 80 percent of the cost of “business-related” meals and entertainment. If a deduction of only 50 percent were allowed, the restaurant industry would not perish from the earth, and $6 billion would flow into the Treasury every year.
Nor should we fail to correct the anomaly by which those Americans with incomes between $50,000 and $200,000 pay income taxes at the marginal rate of 33 percent, whereas the fewer than one percent of Americans with incomes of $200,000 or above pay 28 percent. Taxing the most affluent at the same rate as the less-well-off would raise roughly $10 billion annually.
Finally, legal loopholes in the corporate income tax should be closed. One study of 250 companies found that if they had not taken advantage of these loopholes and had paid at the post-tax-reform rate of 34 percent of their income, the Treasury would have picked up $14 billion in new revenue in 1988 alone. Robert McIntyre, of Citizens for Tax Justice, calculates that closing tax loopholes, projected over all corporations, would raise $42 billion annually.
With the money thus gained we could raise the hardest-working people in our society out of poverty. They are the working poor, and there are more than eight million of them. The earned-income tax credit allows them to receive up to $950 in government aid, depending on the amount of their wages and the size of their families. An increase in that grant pegged to family size, along with the recent increase in the minimum wage, would raise most of the working poor out of poverty without placing an undue burden on small employers. Estimates are that this program of supplementing wages would cost $5 billion to $8 billion a year. Raising the earned-income tax credit would strengthen the work ethic and reinforce a message that must be got across to drug-ridden innercity neighborhoods: Work pays.
WE COULD INVEST IN THE PROGRAMS OUTLINED here, or we could put the billions saved from Stealth and Trident II and Midgetman and Star Wars and NATO and South Korea and COLAs and tax loopholes directly into deficit and debt reduction. Each $50 billion reduction in the deficit would produce a onepoint drop in real interest rates. It would also lower the trade deficit by $25 to $30 billion, because we would not need to borrow so much foreign capital to finance the budget deficit. Moreover, a $50 billion cut in the budget deficit would, by lowering interest rates, increase investment by $15 billion to $20 billion. That new investment would fuel economic growth, which in turn would lower the payout for unemployment compensation, welfare, and other expenses incurred by a sluggish economy. Higher growth, in its turn, would help us meet the interest payments on the national debt, which last year drained away $240.86 billion, more than what the government spent for any program, including Social Security. There are only two ways of dealing with this senseless waste of money: put the budget into surplus and retire the debt, or make the economy more productive so as to increase the size of the revenue pie from which we now take 14 percent for debt service (it was 8.5 percent before the era of “fiscal conservatism” dawned in 1980). The second path is the only feasible one. And that is why decreasing the deficit to lower interest rates (and increasing investment in education, infrastructure, and research) is the key to a solvent posterity. All that stands between us and the more evenly prosperous future made possible by the ending of the Cold War is the depressing machinery of electioneering and simplification that has got our political system in its mindless, suffocating grip. The Republic can survive its problems. The question is, Can it survive its politics?