The Perot plan gores every ox in sight-and its potentially draconian impact has prompted immediate controversy among economists who say it would only worsen the current recession. Perot adviser John White, who assembled the plan for Perot, conceded that deficit reduction could wait until 1994 to allow the economy to recover, but that seemed unlikely to stop the policy debate. Over a five-year period, Perot seeks to raise $348.2 billion with increased taxes and save $413.2 billion by cutting spending and reducing interest payments on the federal debt. He aims to protect government programs for the truly needy, stimulate economic growth and stop the epic borrowing binge that older Americans have inflicted on future taxpayers. “Fair-shared sacrifice … for the sake of our children” is his battle cry. This is how he’d spread the pain:
Perot is willing to attack some of the most venerable sacred cows in American politics, including social security and the mortgage-interest deduction for homeowners. He says he’d boost the top marginal income-tax rate from 31 to 33 percent, which would raise $6.6 billion a year. He wants to restrict the deductibility of mortgage-interest payments to mortgages below $250,000, raising $3.2 billion a year, and he wants to tax employer-paid premiums for health insurance that cost more than $4,020 a year per family: as he figures it, this tax would raise $11.4 billion a year.
Perot says he’d increase the amount of social-security income that is taxable under current law from 50 percent to 85 percent. The tax applies to single retirees with incomes above $25,000 a year and couples with incomes above $32,500; Perot’s proposal would raise about $6 billion a year.
He wants to boost the federal tax on a pack of cigarettes from 24 to 48 cents ($3.7 billion a year) and gradually raise the tax on gasoline. The gas tax, currently 14 cents a gallon, is a biggie. Perot would raise it by 10 cents a gallon every year for five years: by the fifth year, this would raise $50 billion annually, although Perot says U.S. gas prices would still be lower than in other developed countries.
The Perot plan also includes a short list of increased taxes on business. He would reduce the deductibility of business entertainment expenses from 80 percent to 50 percent ($3.2 billion a year) and raise taxes on foreign corporations ($4.3 billion a year). He’d also hike user fees on U.S. waterways and on mining and lumbering on federal lands ($2.4 billion a year).
Perot takes his biggest bite from the so-called untouchables-entitlement payments that go to everyone from the elderly to veterans and farmers.
Medicare and Medicaid costs are growing by 11 percent a year. Perot wants to limit this cost explosion by about a third. He’d require the elderly to pay higher premiums for doctors’ services under the Medicare program, and he would extend the Medicare payroll tax to salaries above $130,000. These changes would save $75.1 billion a year by 1998.
He’d reduce cost-of-living adjustments on pensions for retired federal employees for five years, saving $2.6 billion a year. He also wants to limit subsidies to wealthy farmers ($3.4 billion a year).
Perot wants to cut defense spending more deeply than the Bush administration has proposed, saving $8 billion a year. He promises to eliminate some low-priority federal programs outright, and he’d cut all other domestic discretionary spending by 10 percent across the board.
Perot wants to give back part of these savings to stimulate the U.S. economy. He supports a 10 percent tax credit for new investments, new tax credits for worker retraining by business, a long-term capital-gains tax cut and a permanent 20 percent tax credit for business spending on research and development. He would channel all of his proposed civilian cutbacks to expand government research and development in the civilian economy by $10.5 billion a year. He’d add $5.5 billion a year to increase jobs in poverty areas and expand the Head Start program for low-income children. And he’d spend an additional $8 billion a year on infrastructure improvements.
The Perot plan is under attack from both ends of the political spectrum. Some liberal economists think it will hurt the U.S. economy by cutting federal spending too quickly, while conservatives say it will hurt the economy by raising taxes too much. Both criticisms are arguably off the mark. At $3 trillion and growing, the federal debt is already smothering economic growth by keeping long-term interest rates high-and left untended, the deficit could eventually trigger a national financial crisis. That means the next president will have to confront the deficit sooner or later-and when he does, he will owe a political debt to Ross Perot. It’s just that simple.
