Bitter medicine isn't easy to take, and America is about to swallow a big dose in the form of tax hikes and spending cuts to reduce the budget deficit. Worse, the medicine is being dispensed by a Congress that has just put on another unseemly performance. There was the spectacle of Senator Russell D. Feingold (D-Wis.) holding the entire deficit-reduction package hostage to ban some milk-inducing hormone in cows. And there was Senator Kika de la Garza (D-Tex.) protecting angora goatherders. Even Senator Bill Bradley (D-N.J.), who's smart enough to know better, demanded special breaks for drug companies from his state doing business in Puerto Rico. No wonder P.J. O'Rourke's book describing Washington politics, Parliament of Whores, became a best-seller.
But the fact remains that there is no real alternative to the plan. America must get its fiscal house in order to set the stage for future economic growth. Just the possibility of Congress passing the $500 billion package has prompted a bond market rally that has dropped long-term interest rates over a full percentage point since the election. Those 120 basis points have pumped about $100 billion into the economy, cut borrowing costs for corporations dramatically, set off a capital spending boom, and started clearing the real estate market. Passage of the deficit bill is probably good for an additional half to a full point cut on long bonds, offsetting much of the coming fiscal drag.
Cassandras are overestimating that drag anyhow. Despite the howls of pain, this is a very modest deficit-reduction package. Instead of the deficit being $300 billion in 1998, it will be about $175 billion. This is a $125 billion difference in an economy that is already running at $6.5 trillion. That's not exactly Tyrannosaurus rex stalking the landscape!
And the tax changes are not that frightening, either. The working poor will get a good boost from expanding the earned income tax credit. The middle class escapes virtually unscathed, thanks to the torpedoing of any serious gas tax. True, $180,000-and-up families will find themselves paying more. But their accountants are undoubtedly savvy enough to shift part of their income into capital gains, which are now much more attractive thanks to higher personal rates on earned income.
Despite all the carping and widespread whining, there is no politically acceptable alternative to the deficit-reduction bill, however imperfect it may be. Senator Bob Dole (R-Kan.) has not presented a realistic alternative that details just where he thinks spending should be cut. Even if he did, the cuts would be as politically unpopular as the current proposed tax hikes, and the same horde of special interests would fight against them in the halls of Congress. Criticizing from the sidelines is an easy game to play.
The fact remains that if the U.S. is to grow in the 1990s and generate the kinds of jobs Americans need, the deficit must come down. It's time to share a little sacrifice for the good of the nation.