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![handle is hein.tera/taxfeaturs0031 and id is 1 raw text is: 50th Anniversary Year
TAX FOUNDATION'S
VOL. 31, NO.1 JANUARY/FEBRUARY1987
TAX FEATU
FY8 Budget Proposes 40et $10 Billion
7b Meet G-R-H Target of $108 Vil0io
Modified Freeze Could
Balance Budget by 1990
Domenici Tells TF Dinner
A modified freeze would put the U.S.
within $20 billion of the Gramm-Rudman-
Hollings deficit reduction target for fiscal
year 1988 and would balance the budget
by 1990, Senator Pete V. Domenici told Tax Founda-
tion's Annual Dinner December 3. Delivering a major
policy address after receiving the Foundation's Distin-
guished Public Service Award for 1986, the Senior Sen-
ator from New Mexico and Ranking Republican on the
Senate Budget Committee told the Dinner attendees
that such goals were clearly achievable on a current
policy basis, absent a disaster or a catastrophe.
The modified freeze proposed by Domenici in-
cluded recogniing that 'American servicemen and
American civilian workers ought to get a pay increase
every year; and realizing that the fight against auto-
matic cost-of-living increases is gone because it's po-
litical dynamite, Domenici said. So give everybody
their cost-of-living index increase and freeze every-
thing else at today's levels. Don't cut it; just freeze it-
a literal freeze.
While working toward the budgetary balance his
modified freeze promised, Domenici also called for
facing up to a number of serious problems:
- There may be need for $5 or $10 billion in additional
funds to pay for needed defense outlays. If they truly
need [the additional funds], lay it on the line and say
that's an exceptional add-on and it's got to be paid for,
even if it means revenues, he.said.
- The welfare program currently on the books does
not meet the social problems of today. Among these,
the Senator listed the more serious issue of the single
head of household, and the homeless issue, be-
cause this country is too good and its people are too
decent to let the problem continue unmet.
- Domenici also cited the need for additional re-
search and development to promote competitiveness,
health care for the elderly, and what he described as
the incredible infrastructure dilemma of the cities and
counties and states.
Some of the funds to pay for these programs,
Domenici charged, could be obtained by trading up
and trading out funds for programs still on the books
(Continued on page 4)
P resident Reagan's fiscal 1988 budget prom-
ises unprecedented success in reducing
the deficit. If the new budget is to be be-
lieved, the deficit would be cut in half in
two years, from more than $220 billioni in fiscal 1986 to
less than $110 billion in the 1988 fiscal year. The Admin-
istration would meet the Gramm-Rudman-Hollings
(GRH) deficit target without significant tax increases
and with fewer spending cuts than were sought in pre-
:vious Reagan budgets.
The Political Arithmetic of Deficit Reduction
How does the President promise to cut the deficit
without new taxes and with a continued defense
buildup? Part of the answer lies in the budget's policy
recommendations, part in its economic assumptions.
The table on page 2 shows the path taken by the Ad-
ministration to meet the GRH deficit target. Beginning
with fiscal 1987 spending a bit above the trillion dollar
mark, the budget estimates that expenditures would
rise another $45 billion if existing policies under cur-
rent services were continued in effect. (The current
services budget estimates the amount it would cost to
maintain current policy in future years with expected
price and workload changes in existing programs but
with no spending policy or tax initiatives.) Most of this
increase would be concentrated in the two fastest-
growing sectors of the budget: Social Security and de-
fense. The first is off limits to budget cutters; the sec-
ond has strong presidential support for additional
funds. Big spending increases also would occur-even
if no programs were changed-in other difficult-to-
control areas of the budget such as interest costs, Med-
icare, and other mandatory payments. Only about
one-tenth of the current services increases are esti-
mated to occur in the discretionary, nondefense op-
erations of the Federal government.
On a current services basis, the budget estimates
that about $40 billion will have to be pared from the
deficit to meet the GRH target of $108 billion. A more
realistic computation might show the deficit $60 billion
or more above that level.
The proposed fiscal 1988 deficit reduction leans
heavily on the revenue side of the budget. While pub-
licly warring against any and all tax increases, the bud-
get expects to generate $8 billion in additional revenue
plus $3 billion in user fees, and about $10 billion in in-
come from the sale of government assets.
The budget lists about $20 billion in proposed
(Continued on page 2)
THIS
ISSUE:
PAGE 1:
'88 Budget
Domenici's
Freeze Plan
PAGE 2:
'87 Forecast
PAGE 3:
TRA-86
Back Door
Tax Hike
INSERT:
Employee
Benefits
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