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Pursuing the Economic Policy Agenda
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15842 |
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Section : |
CURRENT ISSUES
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1 / 1989 |
1,670 Words |
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Murray Weidenbaum
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George Bush will face key economic policy challenges early in his administration. How he deals with them will strongly influence the success of his presidency.
The most immediate challenge will be to convince financial markets, at home and abroad, that he is serious about reducing the budget deficit and that he will follow through with the needed painful remedies. Such actions, be they on tax or spending sides--or both--will be individually unpopular. But in the aggregate, they will show that the United States can get its own fiscal house in order.
Doing so will be especially difficult because both presidential candidates omitted details in promising to reduce the federal tide of red ink. What the electorate did hear was mainly wishful thinking: A growing economy would simultaneously produce more revenue and lower interest rates; or the IRS could collect more of the taxes due. That just does not add up to bringing federal spending under control.
Avoiding a tax increase is extremely desirable from the viewpoint of promoting economic growth, but to do so responsibly means enacting a truly comprehensive set of budget cuts. Substantial progress can be made in controlling the spending side of the budget. But that will mean stepping on the toes of many powerful interest groups. For example, the federal government could save $10 billion a year just by postponing military retirement pay to age 55. Many able-bodied veterans of the armed forces now start collecting their pensions at 40, 39, or even 38.
Another potentially large budget saving is to adopt a diet COLA (cost-of-living adjustment) for Social Security and other entitlements. This would mean limiting the annual increase in benefits to cover the amount of inflation over 2 percent. That $15 billion in savings would reflect the fact that--contrary to the general impression--those yearly benefit increases are not earned by the recipients. They are the result of generosity on the part of the working population. To add the proverbial insult to injury, the typical retired person has more wealth than the average working person.
A comprehensive set of budget cuts, however, cannot be limited to military or entitlement programs. Eliminating Veterans Administration hospital stays for nonservice illnesses would save another $2 billion. Repealing controls over wages in federal construction projects would eliminate about $9 billion of federal spending.
Raising interest rates on federal credit (to the same levels that borrowers from private financial institutions pay) would reduce the now insatiable demand for federal lending. That could yield an annual savings of at least $2 billion. Stopping the pork barrel projects of the Army Corps of Engineers and the Bureau of Reclamation (those that would generate fewer benefits than costs, reasonably computed) would save over $1 billion a year.
Each of these budget cuts--and many more like them--is economically desirable, but we must acknowledge that it will be extremely difficult politically to convince Congress to adopt them. To get the American people aroused enough to support such slimming down of federal expenditures will be a major challenge for President
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