Time's Proposal Yes, It Can Be Done
If Congress does nothing further to curb Government outlays or boost taxes, the federal deficit will remain huge: a projected $128 billion in 1992. To close that gap, TIME proposes spending cuts over the next four years that would save $49 billion in 1992, along with tax and other revenue increases that would raise $79 billion.
CHART:
TOTAL REVENUE $1,260 billion, up $79 billion (The first number listed is the amount, in billions, of proposed revenue from various sources in 1992. The second number tells how much a reduction or addition the proposal represents, in comparison with what revenue would be in 1992 if the levies went unchanged.
INDIVIDUAL INCOME TAXES $579 +$46.6
Boost taxes on the highest incomes. The top marginal tax rate could be increased from 28% to a uniform 33%, which is already paid by some upper- middle-income households. That is still far less than the 50% top rate that prevailed before tax reform. $14.1 billion
Eliminate tax-free status of private-purpose municipal bonds. Unlike ordinary municipal bonds, which finance schools, sewers and the like, private-purpose bonds are issued by state and local governments to raise capital for local private companies and nonprofit organizations. $2.5 billion
Increase taxes collected on Social Security benefits. Currently, 50% of Social Security benefits are taxable for individuals with incomes over $25,000 and families with more than $32,000. The proportion of benefits taxed could be raised to 85%, while the income threshold could be lowered to $12,000 for individuals and $18,000 for families. Rationale for the 85% figure: typical recipients during their working years have paid taxes on 15% of the amount they receive in benefits. $10 billion
Raise taxes on employer-paid insurance premiums. Only premiums on life- insurance coverage of more than $50,000 are taxed; the exemption for smaller amounts could be removed. Health-insurance premiums, now exempt, could be taxed as income when the payments amount to more than $80 per month for an individual or $200 for a family. $8.6 billion
Tighten mortgage-interest deductibility. Deductions could be disallowed for mortgage interest payments in excess of $20,000 a year for a joint return and $12,000 for an individual. The second-home mortgage deduction could be eliminated. $1.8 billion
Reduce the tax-free portion of pension funding. Under some retirement plans, annual payments of up to $90,000 are tax exempt. All tax-free thresholds could be reduced by half. $3.6 billion
Tax capital gains on estates. Suppose someone buys stock that increases in value by $1,000 before he dies and leaves the stock to his heirs. If the heirs sell the stock, they do not have to pay taxes on that $1,000, only on any gain that occurred after the stock was inherited. Instead, the heirs could be required, at the time of inheritance, to pay taxes on capital gains. To prevent heirs from having to sell assets to pay taxes, deferral of payments and income averaging could be allowed. $6 billion
CORPORATE TAXES $137 +$6.2
Reduce the write-off on business meals. The restaurant business did not collapse when the full deduction was cut to 80% in 1986. Now the deduction could be sliced to 50%. $3.6 billion
Eliminate special breaks for energy and mining companies. These industries could do without the oil-depletion allowance and other tax-accounting preferences. $2.6 billion
EXCISE TAXES $58 +$24.9
Extend the telephone tax. The 3% federal tax on telephone service is scheduled to expire in 1991 but could be continued. $3 billion
Double the cigarette tax. The tax on cigarette packs has risen from 8 cents in 1951 to 16 cents, but prices have risen more. The tax as a percentage of selling price has fallen from 42% to 15%. $2.9 billion
Raise beer and wine taxes. The tax on wine is only 5% of what it is on hard liquor, while the tax on beer is 25%. Both could be raised to 50%. The tax on a 750-ml bottle of wine would go from 3 cents to 30 cents and on a six-pack of beer from 16 cents to 32 cents. $3 billion
Increase the gasoline tax. Boosting the levy by 20 cents, to 29 cents per | gal., would encourage energy conservation. It would raise $18 billion, of which $2 billion could be rebated to low-income households in income-tax credits. One alternative, imposing an oil-import fee, would be less preferable because it would fall disproportionately on those who rely on oil heat. $16 billion
SOCIAL INSURANCE $433 no change
This category primarily includes Social Security payroll taxes.
OTHER $53 +$1.4
Boost fees for ports and waterways. Ship and barge owners could pay more for passage, licenses and inspections. $1.4 billion
CHART:
TOTAL SPENDING $1,260 billion, down $49 billion
(The first number listed is the amount of proposed spending for a particular category in 1992. The second number tells how much of a reduction or addition the proposal represents, in comparison with what spending would be in 1992 if the progam went unchanged.
DEFENSE $317 -$16
The U.S. is building more weapons systems than are necessary to ensure the national defense. Troop levels could be trimmed, especially if the U.S. insists that its allies share more of the burden of defending the free world. Defense specialists in Congress and the Administration can choose from among several possible cuts: reduce the size of the aircraft-carrier fleet from 15 to twelve and cancel two planned carriers before construction begins (a saving of $3.5 billion in 1992); cancel the Stealth bomber ($7 billion); kill the C- 17 transport plane ($2.3 billion); freeze annual spending on the Strategic Defense Initiative at 1988 levels ($9 billion); trim 80,000 soldiers over four years from the 780,000-member Army ($3.4 billion); cut back on aircraft flying hours and other routine maneuvers ($5 billion or more).
INCOME SECURITY $163 +$1
Past budget cuts in programs for the poor may have been partly responsible for the startling rise in the number of homeless. An extra $1 billion a year would pay for construction of more than 150,000 low-income housing units by 1992.
MEDICARE $117 -$5
In 1983 the U.S. started a program to control Medicare costs by setting formulas for maximum payments based on estimated costs of procedures and treatments. Since then data collected on actual costs indicate, say health- budget experts, that payment schedules could be reduced by 7%. Payments would still rise with inflation, but the one-time adjustment would save about $5 billion in 1992.
HEALTH $64 -$2
The rising level of federal Medicaid reimbursement to the states, which helps pay for medical care for the poor, could be better controlled by pegging increases to the Consumer Price Index. The National Institutes of Health, whose budget has increased more than 50% since 1981, could withstand a 5% cutback without endangering vital programs.
EDUCATION $39 no change
The educational system needs bolstering. But before additional federal funds are committed, the money now available should be redirected. Nearly $2 billion a year could be saved by collecting on defaulted student loans and reducing aid to those who enroll in for-profit trade schools. That money could be funneled to literacy programs in junior and senior high schools in educationally disadvantaged areas.
VETERAN'S BENEFITS $29 -$2
Some 2 million veterans with service-related disabilities receive payments. Half of them have disabilities that in the Government's estimation impair their capabilities by no more than 30%. Examples: moderately flat feet and partly amputated fingers. Even though these problems do not seriously impair a veteran's ability to work, individuals receive up to $128 a month. Ending those payments, while giving the veterans free medical care for their disabilities, would save about $2 billion in 1992.
INTERNATIONAL AFFAIRS $19 +$2
The sharp decline in the value of the U.S. dollar has strapped the State Department's overseas buying power. Everything costs more, from agricultural grants to embassy payrolls to intelligence gathering.
AGRICULTURE $15 -$3
No other major business in America is subsidized the way farming is. Price- support payments and federal assistance for flood and crop insurance could be trimmed substantially.
GENERAL SCIENCE, SPACE AND TECHNOLOGY $11 -$1
Until the Government gets the space program back on track and has a clear set of priorities, spending should not continue at planned levels. Rather than pour so much money into its own space program, the U.S. could enter into less costly joint projects with other countries. Specifically, the building of an additional space shuttle to replace Challenger could be canceled and funding / for the manned orbiting space station cut in half. That would still leave enough to build an unmanned platform in space while developing a larger manned station in cooperation with other nations.
COMMUNITY AND REGIONAL DEVELOPMENT $3 -$4
Most of these loans and grants, if given at all, should be paid for by state and local governments. Intended to help distressed areas, these funds too often wind up aiding profitable businesses in comfortable neighborhoods.
ENERGY $3 -$1
Though it is essential for the U.S. to cultivate domestic energy sources and know-how, current spending is excessive. The research-and-developme nt budgets for nuclear fission and fossil fuels could be cut by two-thirds. In addition, the U.S. should reduce funding for rural electrification and remove subsidies on the sale of federally generated power.
NET INTEREST $162 -$18
Spending cuts over the next four years will slow the accumulation of the national debt and thus reduce the projected level of federal interest payments.
OTHER $318 no change
Among the categories for which no spending changes are recommended are Social Security ($285 billion), transportation ($31 billion), natural resources and environment ($18 billion), general Government ($11 billion) and Justice ($10 billion).
CREDIT: TIME Chart by Joe Lertola
CAPTION: NO CAPTION
DESCRIPTION: See above.