THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, June 18, 1995 TAG: 9506170002
SECTION: COMMENTARY PAGE: J5 EDITION: FINAL
SOURCE: PERRY MORGAN
LENGTH: Medium: 69 lines
The virtues of defeat of the balanced-budget amendment loom ever larger. Given one additional vote in the Senate, the amendment, after much crowing, would have been sent to the states for ratification - and more delay in biting the bullet of reducing deficits. Deprived of a fig leaf, congressional Republicans have buckled down and actually committed themselves to a scheme to reduce spending, something Ronald Reagan never fought for and George Bush hardly mentioned.
For their pains, they've been impugned by Democrats who themselves have nothing to offer. But having shown some courage and character, Republican leaders in the House continue to undermine their achievement by insistent efforts to make a case for a big tax cut. This confirms the observation by Herbert Stein, once chairman of Richard Nixon's Council of Economic Advisers, that ``Republicans have a special weakness for special interests that can be accommodated by tax reduction.''
A citizen might wonder: If the government wants to reduce benefits because outgo exceeds income, why does it also want to reduce income? Indeed, moderate Republicans in the Senate do wonder about that question and vow to oppose any tax cut until the Congressional Budget Office can certify that a budget eliminating the deficit has been adopted.
This classic bird-in-hand conservatism affirms the urgency of deficit reduction. The House dilutes that urgency by saying that while some must go on leaner rations, billions ($354 billion) can be found to make things easier for others. This conflict can be judged without reference to the rich vs. poor drumbeat of Democrats. The real question is whether or not the Senate Republicans are right in giving deficit reduction priority over tax reduction, and the clear answer is yes.
When House Majority Leader Dick Armey argues to the contrary, he winds up toeing a liberal line. He says a huge tax cut is warranted as stimulus for a slowing economy and, so saying, appropriates a Democratic argument against the balanced-budget amendment whose passage Armey and Newt Gingrich so devoutly favored. While that duo insisted real deficit reduction wasn't possible without the amendment, Democrats said the amendment would deny government needed flexibility to respond to inevitable recessions. With tax cuts of course.
Oh, well, Armey is an economist in politics; consistency can hardly be his crowning jewel. On the other hand, it's hard to figure how an economist can wholly ignore the role of the Federal Reserve Board in the economic recovery that now runs some risk of stalling. If memory serves, the Federal Reserve: (1) whacked interest rates after Bill Clinton committed himself to reduced deficits that now stand - as a percentage of gross domestic product - at their lowest point since 1981; (2) jacked up rates as the economy recovered and began a rapid expansion. In little more than a year, the Federal Reserve boosted its key interest rate from 3 percent to 6 percent.
Critics say the board moved too fast too far and that continuing effects of the rate hikes could bring on a recession. This may or may not be so; what's not arguable is that the actions of the board have had considerable effect. But Armey, writing in The Washington Post, says the Clinton income-tax increase passed in 1993 bears full responsibility for a recession he terms imminent. Maybe he has it right this time, but it's well to remember that only yesterday Republicans were arguing that the Clinton tax increase would forestall the recovery that the Reserve Board has braked repeatedly. So, maybe Armey has it wrong this time - about the tax cut, at least. Republican deficit hawks in the Senate think so. Public-opinion polls say so. Trillions in federal debt say so. MEMO: Mr. Morgan is a former publisher of The Virginian-Pilot and The
Ledger-Star. by CNB