Tiptoeing Around the Deficit

THE American economy is the No. 1 issue in this political year, but neither President Bush nor his Democratic challenger, Gov. Bill Clinton of Arkansas, is talking seriously about the basic problem with the economy. This is the massive federal budget deficit. More broadly, it is the legacy of 12 years of Reagan-Bush economic policies.

The reason we are not hearing serious political discussion of this problem is that it hurts too much. The consequences of Reaganomics are as painful to endure as the remedies are to contemplate.

Consider first the consequences. The budget deficit effectively paralyzes public policy both at home and abroad. For anything that needs doing, the government simply has no money. Nor is it only the federal government that is broke. States, counties, and cities have been hit with a triple whammy: federal grants are down; state and local tax receipts are down; demand for state and local government services is up, in part because the federal government is pulling back, in part because more people need help

of one kind or another. So streets, highways, and bridges are not repaired; schools and libraries are neglected.

In foreign affairs, there is an opportunity such as has not existed since 1945 to shape a real new world order (not whatever it was that Mr. Bush vainly hoped would come out of the Persian Gulf war), but we have no money. The United Nations has renewed prestige and renewed opportunities to play the kind of role originally envisaged for it; but it has no money, in important part because the United States is behind in its dues.

Now consider the remedies. There are only two: The government's receipts have to be increased, and the government's spending has to be reduced. One of the more peculiar disservices of Ronald Reagan was propagation of the myth that you can increase the government's revenues by cutting taxes. This has contributed to the mindless, massive political opposition to higher taxes. Somebody is going to have to slay that dragon, but everybody running for office is reluctant.

Nor are the prospects for reducing spending much more palatable. The government is in a Catch-22. Sen. Jim Sasser (D) of Tennessee, chairman of the Senate Budget Committee, put it nicely: "We're not going to reduce this deficit until we get this economy moving again." He should have added that the economy is not going to move until the deficit is reduced. And meanwhile, the economy gets in the way of reducing the deficit: Budget cuts too often mean job cuts. So Congress is reluctant to save money on wast eful defense and space projects.

WO of the biggest sources of budgetary hemorrhage are Medicare and Social Security, a pair of political sacred cows with largely uncontrollable costs engraved in law. There is a way to recapture part of those costs: make the benefits taxable to the recipients. Social Security payments are partially taxable now above certain income limits. There is no reason such payments should not be fully taxable, once they exceed the recipient's earlier contributions. This is the way other pensions are treated, and no body complains about it.

Medicare payments are already taxable to the doctor, hospital, or other health-care provider who receives them. The proposal here is that they should also be taxable to the patient for whose benefit they are made. Health-insurance payments other than Medicare should be treated the same way. This would provide the government with a great deal of money and would still give people cheap health care. (I am indebted for this idea to Dr. Maurice A. Sislen, a practicing physician in Washington, D.C.)

Ideally, a political campaign ought to be the occasion for competing candidates to debate serious ideas about how to deal with the country's problems.

That is unlikely to happen this year, because the budget is perceived to be one big political minefield. Both candidates advocate a presidential line-item veto, the principal effect of which would be to shift power in the government from Congress to the president. Bush repeats endlessly that the deficit is Congress's fault anyway. The truth is that if Congress had adopted every Reagan-Bush budget without change, the deficit would be even worse than it is.