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

DATE: SUNDAY, January 15, 1995                   TAG: 9501270010
SECTION: EDITORIAL                    PAGE: G-2   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Medium

WHAT HAPPENED TO DEFICIT CUTTING?

The federal tax cuts of 1981 were unaccompanied by any pretense of equivalent spending cuts. The result: ballooning deficits whose legacy continues to haunt government finances.

Today's federal tax-cut bidding, by contrast, comes with reasonably specific spending cuts to match.

But while the new lyrics are an improvement, the song still needs work. Lost amid the tax-cut words - whether from congressional Republicans ($184 billion over the next five years) or from a Democratic president ($60 billion over the same period) - is continued deficit reduction and a start on whittling the massive national debt built up from previous deficits.

That would require either higher taxes or spending curbs not offset by tax cuts.

Taken alone, the current deficit - about 2.5 percent of the size of the U.S. economy - is probably within sustainable limits for nonemergency times. Certainly, it is better than the biggest deficits, as much as 6 percent of the U.S. gross domestic product, generated during the '80s.

To buy down the debt produced by those borrow-and-spend years, however, smaller-than-sustainable deficits are needed now. And instead of shrinking, deficits are projected to start climbing again soon. This climb cannot be forestalled if spending curbs do no more than offset tax cuts.

In the past 15 years, deficits and debt have forced ever-increasing percentages of your federal tax dollar to go for interest payments. A contractual obligation of the United States to its creditors, debt service is perhaps the most unshakable spending commitment in the federal budget. Yet it buys nothing for current taxpayers; much of the money goes to foreigners; and it contributes to the very deficits of which its climbing cost is also a result.

In 1957, net interest payments amounted to about 7 percent of federal outlays; in 1977, 6.8 percent. By 1982, debt service had climbed to nearly 11 percent of outlays; today, it takes up 15 percent. Curtailing other federal spending only to pay for tax cuts would push that percentage upward.

Throughout its history, America has borrowed heavily to meet the demands of military and economic emergencies. Until recent years, however, the debt was always cut back when the emergency was over.

The current national debt, an emergency-sized three-fourths of the gross domestic product, not only was amassed in nonemergency conditions, but has not been reduced since.

The explosion of debt-service costs is one contributor to the fact that only about one-third of today's federal outlays go for actual federal operations; in 1957, almost two-thirds did. Moreover, the bulk of that is for defense, an area where both the administration and many congressional Republicans call for more spending.

In other words, you could kill off every nondefense federal operation, - the FBI, the courts, the national parks, whatever - and you would cut federal outlays by no more than about 10 percent. To curtail the other 90 percent of federal outlays, you must reduce or stop federal checks written to other people, mostly private citizens.

This may help explain why the words to the tax-cut song, while changed, haven't changed enough.