Why Reaganomics Won't Work

WHEN PRESIDENT REAGAN presented his economic program to the Congress, he asserted the following as its guiding philosophy:

"The taxing power of government must be used to provide revenues for legitimate government purposes. It must not be used to regulate the economy or bring about social change." In this time of fiscal restraint, the President's statement has a comforting ring of benevolent neutrality. Indeed. Republicans justify their new proposals to curb government programs by saying they will spread sacrifices equally while offering long-range benefits for all.

The problem is that the Republican program is not, in fact, even handed; those ahead will come out even further ahead, those behing will fall even further behind. Thus, if you've got a six-figure income, own an oil company or work for the Pentagon, you win. If you're out of a job, a student on loans, or a breadwinner trying to make ends meet, you lose. The President has created a perverse form of Robin Hoodism in which the government steals from the poor and middle class to give to the rich. The plan's rationale--that it will reduce both inflation and unemployment--is based on unproven assumptions like the much-disputed Laffer curve. Thus, if it is adopted, Americans are likely to be left with a system that is both stagnant and unjust. Reagan has persistently argued that taxes were a severe burden on the middle class, but his plan offers average Americans little relief, saving the biggest tax breaks for the rich--who need and deserve it least. While middle-income families might receive a few hundred dollars, those earning $200,000 a year will get a windfall of over $10,000 apiece.

The Republicans try to justify this giveaway by saying the wealthy will use this extra money for the general economic good by saving and investing it. Other than the Laffer curve, they have, however, been unable to offer any economic or historical justification for this $200 billion assumption. Indeed, the rate at which money is saved in this country--as opposed to spent on consumption--has remained steady over the years, high taxes or low. It is far more likely that these tax cuts will be spent by the rich on luxury goods, thus fueling inflation while adding nothing to the nation's productive, job-creating capacity. As historical evidence, consider the disastrous record of the Conservative Thatcher government in Britain. When it tried its own version of Reagan-style economics, unemployment did not decline--it rose by a resounding 86 percent. Inflation did not decline--it doubled. Clearly, the Republicans' advocacy of a similar plan is highly irresponsible.

Democrats have a better alternative. First, a tax cut focused on lower and middle-income families, yet small enough to avoid being inflationary, is advisable. More importantly, however. Democrats see high inflation and unemployment as symptoms of an economy that is failing to use its vast resources efficiently. Therefore, we urge targeted efforts to ensure the more productive use of capital, labor and technology. Tax incentives should be offered to business that invest in productive plant and equipment. Federal funding for civilian research and development must be expanded, not cut, as the Republicans propose. Finally, we must tap the unused resource of millions of able-bodied Americans who cannot find work. Government and industry must work together to provide training, not for "make-work" jobs, but for real, longterm employment.

These policies are complex, but so are our economic problems. There are no quick fixes for inflation and unemployment. These steps also, to be sure, will cost money. However, their price tag will be far lower than that of the $200 billion Republican tax cut, and they will have no harmful effect on income distribution. Democrats believe their policy of a sustained federal commitment to improved productivity offers hope for an economic recovery in which all Americans can share.

The second part of the Republican program is a series of cuts in Federal spending. These are needed to reduce an inflationary budget deficit--a large part of which is caused by the lost revenues under the Republican tax cut plan. How does Mr. Reagan propose to close this gap? By cutting funding for policies benefiting millions of poor and middle-income Americans, while leaving untouched programs for wealthy special interests. Once again, evenhandedness is ignored.

President Reagan is right in seeking to eliminate the inefficient and fraudulent use of federal programs. Those who have sufficient personal income should not receive taxpayers' money. Programs that do not achieve their stated goals should be reformed or abolished. The problem is that the Republicans fail to apply these standards with any consistency.

First of all, many of their budget cuts fall on programs that do help people in need. The President's own Secretary of Labor admitted that by imposing hardship on those who can least afford it, the cuts were "not particularly humane." Surely, poor families unable to retain lawyers should not be denied legal aid. Surely, a family of four making a mere $11.000 per year should not be denied food stamps. Surely, a middle class family with several children in college should not be denied student loans.

Second, the Republicans seek to slash funding for policies that are investments in the future, while leaving intact their own pet porkbarrel programs. They seek to cut the budget for clean alternative energy sources by 75%, while giving the nuclear power program full funding. They cut deeply into support for education and scientific research, while barely touching such boondoggles as water projects and tobacco subsidies. These skewed priorities may serve the Republicans' special interests, but they will certainly harm America's longrun national interest.

Democrats have a better alternative. First, by not adopting the Republican tax cut, we can eliminate a large part of the expected shortfall in government revenues. Then, in addition to curbing the pork-barrel projects already mentioned, we can further reduce the deficit and help control inflation by attacking two of the largest and least scrutinized areas of the Federal budget--tax loopholes and defense spending.

The Republicans have made absolutely no attempt to eliminate any of special provisions in the tax code by which the privileged receive billions of dollars for unproductive activities. Using such loopholes, hundred of wealthy individuals and large corporation: pay virtually no tax each year.

If taxpaying, working people are to be asked to make sacrifices, then the rich should at least be asked to pay their fair share of the tax burden. Let us trim the $4 billion in subsidies to the profit-rich oil companies. Let us shut off the tax shelters in which the wealthy hide their earned income. And let us cut out deductions for three-martini business lunches that are nothing more than food stamps for the rich.

Second, the Republicans make no real effort to control military spending. Some inefficient policies have been eliminated, but large increases in overall spending have been proposed.

Democrats support improvements in America's conventional armed forces. However, our national security cannot be strengthened by throwing money at the Pentagon. In particular, such extremely expensive weapons as a new manned bomber and the MX missile, which are likely to become obsolete soon after they are deployed, should not be built. One of our chief national priorities must be real arms limitation. A new SALT treaty should reduce the threat of war and eliminate the need for a costly resumption of the arms race. In that sense, arms control can be the biggest budget-cutter of all.

Democrats do not wish to be seen as disagreeing with every aspect of the Reagan economic policy. Some parts of the tax package, such as adjusting business taxes to compensate for inflation, have merit; so do cuts in price-support programs that harm the overall economy.

In general, however, we oppose the Republicans' tax and spending plans, for they violate even their own minimum, evenhanded standard. Instead, they offer us a future on continued economic hardship and increasing inequity. The only Americans that will surely benefit are the wealthy individuals, defense contractors and large corporations that have always formed the chief constituency of the Republican Party.

Even in these uncertain political times. Democrats remain committed to a different philosophy of government. As Edward Kennedy recently stated:

"The demand of our people is not for bigger government, or smaller government, but for better government. We cannot solve our problems by throwing money at them, but we also dare not throw our national problems onto a scrap heap of inattention and indifference.

"The poor may be out of political fashion, but they are not without human needs. The middle class may be angry, but they have not lost the dream that all Americans can advance together."

Guided by this spirit, our program of improved productivity, and budget and tax reform is designed above all else to improve the quality of life of poor and working Americans The task will not be easy, but we believe that the twin goals of a healthy economy and a fair society are within our grasp.

Jess Velona is a member of the Executive Committee of the Democratic Club.