House Democrats Look for New Taxes, Ponder Defense Cuts

THE Democratic leadership is in the process of deciding what tune to dance to at the congressional budget bash this year. It is a difficult election-year decision for the Democrats, trying to find party harmony on such potentially discordant items as Sen. Daniel Patrick Moynihan's proposal to reduce the Social Security payroll tax, and scrapping the Gramm-Rudman deficit-reduction target.

A member of the Democratic task force that is mulling over these issues, Rep. Leon Panetta (D) of California says the party has a lot of different options, ``but no conclusions.''

If Congressman Panetta - the chairman of the House Budget Committee - had his way, he would resolve the problems by playing some political rock and roll. As he told reporters over breakfast last Thursday, he would prefer to take the Social Security Trust Fund out of the budget for Gramm-Rudman purposes - one of Senator Moynihan's ideas. Since this would boost the deficit by $40 billion the first year, he would also extend the deadline for deficit reduction to 1998 or '99. He would scrap Moynihan's proposal to reduce the payroll tax even though it has pleasant political ramifications.

Panetta does not hide his unhappiness over the Gramm-Rudman law, which he says is facing a ``watershed'' year. ``Gramm-Rudman presents all the wrong incentives for deficit reduction because it focuses on one year, and not a multiyear savings,'' the lawmaker says.

Panetta's solution to the budget mess is the traditional Democratic combination of new taxes and defense cuts.

He would focus on making the tax system more ``progressive'' by making the rich pay a higher income tax. He opposes a cut in capital gains unless it is balanced by higher income taxes for the wealthy.

Panetta has already told Defense Secretary Richard Cheney that Congress is going to insist on deeper cuts. Exactly how deep is hard to tell because Panetta wants Cheney to come up with a defense policy for the next four to five years.

Even so, he says he believes some big budget Pentagon weapons systems are ``politically vulnerable'' this year. This includes the ``star wars'' system, the B-2 bomber, and the MX and Midgetman missiles. But even cutting these systems, he admits, will not save much money in fiscal 1991. It is a process that takes four or five years to ratchet down the expensive systems.

Instead, to achieve immediate defense savings, Panetta says there would have to be cuts in personnel, readiness, and maintenance. Panetta says such cuts would not be responsible.

There will be base closings, Panetta says, to get the military infrastructure down. However, he admits the base closings do little to save money since the initial savings are passed on to the local communities to help them adjust to the loss of the facility and it costs a lot to clean up the bases.

In the nondefense area, Panetta says there have to be savings in health care and agriculture.