How to fix the budget without hurting the country; some common sense solutions.

• Author: Emerson, Nathan

How to Fix the Budget Without Hurting the Country

The unctuous-looking salesman in the magazine ad offers the reader a bottle labeled "Securities Transaction Excise Tax." The advertiser is Merrill Lynch, and the accompanying text warns that such a new tax on stock and bond trades "could have a very damaging effect on the financial markets and the economy." Merrill Lynch says that the tax's side effects would include "a $25 billion reduction in the Gross National Product" and "a 250,000 person increase in unemployment." In a similar effort, Anheuser-Busch is running TV ads suggesting that increasing the tax on beer would destroy all those golden moments featured in its regular commercials. These ads epitomize the latest trend in antitax thinking. "It's not that we're against increased taxes because we're selfish," the reasoning goes, "our concern is that any tax increase will hurt the nation."

This line makes for good advertising copy, but is it true that all attempts to raise revenue will wreck the economy? No. In fact, many would help it.

The federal debt is pushing $3.5 trillion. As things stand, next year's contribution to that debt, the 1991 budget deficit, will be about $170 billion. If no headway is made on reducing that figure by October, the "sequestration" procedures of the Gramm-Rudman-Hollings deficit control law will kick in, mandating across-the-board budget cuts.

But those procedures are not the answer. Rather than enforce budget discipline, as they were supposed to, they have merely added "off-budget" gambits to government's well-stocked arsenal of responsibility-avoiding accounting games. Even worse, sequestration is the ultimate example of preferring the bludgeon to the scalpel. Not all parts of the budget are equally fat; some are too lean. The only way to make gains against the deficit is to consider revenues and expenditures on their individual merits. The following proposals do just that.

*SOCIAL SECURITY--Social Security benefits are completely tax-free for couples with adjusted gross incomes under $32,000 and for individuals making less than $25,000. Even those above these thresholds pay taxes on no more than 50 percent of their benefits. And Social Security taxes are withheld at the same rate regardless of the taxpayer's total income. Out of the $10,833 in yearly income made by a typical McDonald's employee, the federal government automatically skims $765 off the top in Social Security withholdings. To the burger flipper, that's no small amount. The problem with this setup is that it doesn't discriminate enough between the needy and the non-needy. Social Security withholding really hurts the low wage earner, while the high-paid one doesn't even notice it. To those below the cutoff, Social Security income is a previous source of subsistence, while to most of those above it, it's just more disposable income.

Here's what we should do to fix all this: Eliminate Social Security withholding for low wage earners--say, on all those making less than $15,000 a year--but treat all Social Security benefits received by those above the $25,000/$32,000 cutoffs as ordinary taxable income. It's estimated that making these changes would produce $3 billion in annual revenue.

Furthermore, according to government estimates, people who retired in the mid-1980s will receive. Social Security benefits 2.5 times the value of their own contributions. Since Social Security is essentially for the living, why not take such excesses back as part of the inheritance tax when these beneficiaries die? (Out of fairness to the poor recipient and his heirs, we should establish a threshold for the deceased's total assets below which this recovery technique would not apply.) Implementing this idea in 1991 would probably generate about $15 billion.

* INCOME TAXES--"I grew up in one of those households," writes the novelist Michael Thomas, "where Roosevelt was cursed up to 30 years after his death for the high taxes the successful paid, and I had to...