Talk is cheap, the saying goes, and economic talk since the stock market crash of Oct. 19 has been the most plentiful commodity around. For virtually every American stockholder, there is an economist with a theory about what caused the panic and what to do about it. Some say the severity of the American budget deficit problem is exaggerated and an overreaction by Washington could trigger an economic downturn. Others contend that Congress and the President must come up with far more than $23 billion in deficit reductions if they are to calm Wall Street's jitters.
There is no doubt that balancing monetary and fiscal policies is a delicate matter now, particularly as they affect the value of the dollar abroad and interest rates. But there is no doubt, either, that the federal budget deficit must be reduced. It should have been reduced before Oct. 19. It is even more imperative that it be reduced now.
The American economy has been running on a dangerous diet of debt during the 1980s. The federal debt has doubled since Ronald Reagan took office as taxes were cut and defense spending soared. The balance of trade has gone from a surplus to record deficit levels. The American consumerism of the last half dozen years, much of it feasting on imported goods, has been financed to a large degree with private debt.
The economy has managed to expand only because its weakness has been papered over with debt, Prof. David M. Gordon of the New York School for Social Research wrote in Sunday's Times. "We are now staggering under the weight of these aggregate IOUs."
The time has come finally to begin staggering out from under the IOUs. A combination of budget cuts and tax increases totaling about $23 billion is the least that must be achieved by President Reagan and Democratic leaders in Congress as they negotiate a fiscal 1988 budget. Some new revenues could come from proposals in Reagan's original budget, although gimmicks such as the sale of federal assets will provide no real deficit relief. A variety of excise increases could raise $12 billion easily with no excessive hardship, inequity or threat to the economy--and in some instances, could provide a social benefit.
A doubling of the 9-cent-a-gallon gasoline tax would produce nearly $9 billion and encourage energy conservation. Increasing the cigarette tax from 16 cents to 32 cents per package would raise $3 billion, help offset the federal subsidy to the tobacco industry and discourage smoking. Beer and wine taxes have not been raised since 1951. Boosting those levies to levels comparable with liquor taxes would raise more than $4 billion.
It should not be difficult for the negotiators to pare about $12 billion from the domestic and defense budgets. The reductions certainly would be more equitable and sensible than the $23 billion in robotic reductions that would be required under the Gramm-Rudman law if Congress and the President fail to reach a deficit agreement by Nov. 20.
The budget battle is not just Washington-insider stuff this year. Wall Street and the world are watching. There is no time for prideful posturing or political gamesmanship now. Now is the time for real leadership and action.