
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, August 12, 1993                   TAG: 9309120243
SECTION: EDITORIAL                    PAGE: A11   EDITION: METRO 
SOURCE: Ray L. Garland
DATELINE:                                 LENGTH: Long

CLINTON'S PLAN: THE MORNING AFTER THE NIGHT BEFORE

IT'S A doggone shame that everything this country does now must be pitched in apocalyptic terms. Thus, we have Sen. Robert Kerrey, who voted for the president's tax plan when it first passed, and who publicly agonized over his second vote, telling Clinton, ``I would not and could not cast a vote that would bring down your presidency.''

The Virginia delegation voted as it had before, with members wisely calling as little attention to themselves as possible. Only Rep. Owen Pickett among state Democrats broke with the president: Payne, Sisisky, Moran and Byrne stood with him to the end. Sen. John Warner and the four House Republicans voted no while Sen. Charles Robb, who has emerged as something of a Clinton cheerleader, voted yes.

A switch of only one in either house would have defeated this bill. So, any candidate opposing an incumbent Democrat can say without exaggeration that his or her vote was the one that passed it.

Nothing matters now but the public's perception of the state of the economy. If growth is robust a year hence, this vote will be largely forgotten or ignored. If not, Democrats stand to lose control of the Senate and at least 25 seats in the House.

It's easy to find fault with the assumptions undergirding Clinton's plan. The first is that those individuals with taxable incomes exceeding $115,000 (couples over $140,000) will keep doing exactly what they've been doing under the old 31 percent rate. That is, stand and deliver. Experience suggests they will change what they can, and the government may not realize all the loot promised.

What isn't generally recognized is that a great deal of this income is earned in states and localities imposing high taxes of their own. If you live in New York City and earn $250,000, you will fork over 36 percent to the federal government; 4.46 percent to the city and 7.60 percent to the state. That's 48 percent. Then, you'll pay a 6.20 percent Social Security tax (matched by your employer) on the first $55,500 of salaried income and a 1.45 percent Medicare tax (matched by your employer) on all salaried income.

You also will pay federal, state and local sales and excise taxes, and the local real-estate tax. Translation: A salaried homeowner in New York earning $250,000 will pay close to 60 percent of his income in taxes. In California and Massachusetts, it will be slightly less.

If these rates don't act as incentives for tax avoidance, it will be a miracle. But no one can say the Democrats didn't give fair warning. Many Democrats saw it as bad economics but good politics. That's confirmed by the fact that few Republicans publicly argued against socking it to ``the rich.'' There was a case to be made that taxes exceeding 50 percent of income are unfair and unproductive, but it wasn't made.

Perhaps the greater fraud resides in the realm of spending cuts. For fiscal 1994, beginning Oct. 1, the plan contemplates reductions from what would have been spent of only $21 billion, or 1.6 percent. In fact, not until fiscal 1997 are ``cuts'' projected to exceed tax increases. Cuts? Between spending for 1994 and spending for 1998, the plan calls for an increase of $256 billion!

The cuts in the ``out years'' are largely hypothetical because the categories now driving this budget, such as Social Security, Medicare, Medicaid, federal pensions, interest on the national debt and food stamps, are ``sum sufficient'' items. That is, the bills come due and must be paid, regardless of estimates.

What about deficits? If every jot and tittle of this plan works as advertised, deficits for 1994 through 1998 will be $1.1 trillion.

The deficit is much misunderstood. World capital markets are calmly absorbing U.S. deficits of some $250 billion a year. And it can be argued that some degree of deficit is required for the orderly conduct of those markets. The rub will come when and if the capital markets are spooked and interest rates start rising. A return to rates prevailing as recently as 1989 would cost the federal government about $100 billion a year, or an amount greater than all the spending cuts and tax increases contained in the Clinton plan. Clearly, that can't be allowed to happen, which suggests continued slow growth.

Some will say the president squandered an historic opportunity to make structural changes in federal entitlement programs which, over time, would have brought the deficit under control without tax increases. The argument for it was simple: There will be an explosion of entitlement payments when baby boomers start retiring in earnest about 12 years from now. No provision has been made to deal with it. Unless basic changes are made soon, we will be looking at tax increases that will make the ones just passed look mild.

Doing that on paper is easy. You cap automatic cost-of-living increases at the increase in real wages after taxes instead of prices and rather quickly phase out those early-retirement privileges. Medicare should be revamped to pay 100 percent of all charges above a substantial deductible, say $1,200 a year, and Medicaid should be put on a contracted, clinic-care basis where population density permits.

There are a host of other things you could do to cut costs, but most of the money is found in these four items.

In fairness to the president, there wasn't the slightest chance that such a program could have been enacted. The sad part is that it took a bill of 1,800 pages to design a Band-aid.

\ Ray L. Garland is a Roanoke Times & World-News columnist.

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