231. "Deficit Reductions in a Populist Age: How to Sell Shared Sacrifice," Challenge, (March-April 1993), pp. 22-25.


Once upon a time, in the far away age of 1991, the President and Congress could cut a deal, and the public would grumblingly acquiesce. Political observers commiserated about voter apathy. Now that the Larry Kings of radio, the call-us-800-numbers, and populists Clinton and Perot have re-engaged the public, our political leaders must learn to dance with an eight hundred pound gorilla. It has already pushed Zoe Baird off the dance floor; it has had a major say about whether or not gays are going to be allowed to participate; and it is now wondering if it should fall in step with the Administration's ideas about deficit reduction.

The OMB is burning the midnight oil trying to figure out the right size of the deficit cut. Economists argue whether a deficit reduction of $145 billion by the fiscal year 1997 is "large enough," while a $125 billion cut is "too small" to "reassure the financial markets." Others are properly concerned with timing: Ideally the suggested stimulus would hit as soon as possible, while the economy still needs a lift, while the downer that deficit cutting entails should not kick in until next year. Nobody wants to push down an economy that is just finding its legs.

Lost in these important deliberations, is finding effective ways to ensure that the public will embrace the suggested measures. For now the public is rather ambivalent. Only one out of three sees reducing the deficit as a top priority. And when asked about which expenditures to cut or taxes to raise, about as many oppose most specific proposals as are in favor. Gasoline tax? 42% are in favor but 54% are opposed. Reduce tax breaks for health insurance? 54% favor but 37% oppose, and so on. There are no solid majorities (more than 65%) for any substantial tax increases or significant reductions in expenditures. In short, unless public support is significantly expanded and deepened the re-energized electorate will not tolerate much pain.

And all this is before most Americans realize that the pain they will be asked to tolerate is likely to exceed a quadruple root canal. A deficit cut by $145 billion entails an income loss (or expenditure increase) of thousands of dollars each year for the average American family, at least until the end of century. It will feel like taking out a mortgage or paying interest on a college loan -- without getting a house and with the kid still under foot. It will take a lot more than many inside the beltway seem to realize to get the public to sweat blood when the most it expects is some strenuous jazzercise.

In the year I spent in the White House, at least once a month someone would urge that the President should use his bully pulpit (or fireplace) to deliver a "really good speech" to the American people, after which the people were fully expected to line up behind whatever program the caller favored. Luckily for our democracy, the public cannot be swung that readily. It took Roosevelt two years to maneuver the American people into World War II; and we are still trying to come to terms with the sacrifices exacted by the oil crisis, the subject of Carter's 1979 malaise speech. Much more than any Presidential speech or televised townhall meeting in a few cities -- the way the new budget is developed, and the role the public will play in fashioning it, will determine where the forthcoming deficit-reduction dance will end.

1. Provide specific outcomes.

Among social scientists there is a grand debate as to what motivates citizens: their self-interest or their nobler values? Given the degree of pain we face, it seems best to appeal to both sides of the self. Citizens have already heard plenty about the need to sacrifice, about their duty to their children, and about the need to make America competitive again. Now they need to be shown what deficit cuts will do for their pocketbook.

For example, according to Data Resource, Inc., if the deficit is reduced by $100 billion, interest rates on 30-year treasury bonds would fall to 6.4%; if cut by $200 billion -- to 5.75%. (Other private sector sources provide rather similar projections). These figures can be translated into equivalent reductions in mortgage rates and those on small business loans. In short, into figures that mean something to workers, home owners, and investors. Economists will correctly point out that one cannot assuredly promise that the interest rates will fall as predicted. Other factors, from OPEC to the Bundesbank, might slow the fall. The President may well wish to be careful not to swear on a stack of Bibles that the rate will be, say, 5.9% by Oct 31 1997. But he can state with much assurance, that if the deficit is cut as suggested, the rates will decline, citing the predictions of the private sector. Next, everybody from Bentsen to Reich, to Rubin, would need to remind Americans that as a result, mortgage and loan payments will fall accordingly. Indeed, it might be argued, that this way an average citizen would recoup much of the loss due to higher taxes and fewer services.

2. Show fairness

People used to say "don't tax me, don't tax thee, tax the man behind the tree." The promise of specific personal gains, coupled with a strong appeal to civic duty, may get the public to cry out "tax me and tax thee" but it is sure to add "as long as it is equally!" There is nothing so sure to raise the public's hackles as the feeling that it is being shafted while other people wallow in tax loopholes, government subsidies and so on.

A study found that the belief that the tax burdens are unfairly distributed is a more important factor in tax evasion than their sense that taxes cause a personal financial loss or hardship (38.9% cited the first cause; 33.3%, the second one). Though this study is based on what people report about their own feelings, another study altered the conditions under which people were asked to "file" their taxes. It found that more people in this simulation did not pay taxes due when they believed the tax raise favored one group over others as compared to when they thought the burden was equally shared.

What is a fair distribution is a subject debated by social philosophers for centuries and they are not quite done. The best the White House can do is to ask all interest groups to yield one or more of their main privileges. Hence, it does not serve at all, to suggest one day that energy taxes will be raised (which will hit harder those who live in the colder parts or where they must travel long distances), and the next day that social security beneficiaries will be hit. All the oxen must be gored simultaneously if the public is to feel that the pain is widely and fairly distributed.

Some economists may scoff that disallowing mortgage deductions on second homes, revoking exception from the federal tax on diesel for pleasure boats, removing tax deductions for pharmaceutical companies who operate plants in Puerto Rico, imposing a transaction tax on Wall Street, or combining the three health services of the military into one, are small potatoes, compared to "going after entitlement programs," where the real meat is. However, only if scores of interest groups will squeal all at one and the same time, will the public see and believe that the burden is widely shared.

3. Consult the public directly.

Studies show that when the public is truly consulted, it is much more willing to slash deficits. When not confronted with a love-it or leave-it ready made deficit-reduction package concocted by Congress and the President, but rather asked how much and above all what would you cut -- the public swings the ax with considerable verve.

Some evidence comes from "citizen juries." These are groups of 18 to 24 individuals, selected by civic leaders to represent the demographics of the country, that conducted three to five day deliberations on the budget. The "juries" listened to experts and politicians, read up on the subject, and dialogued with one another. When they were done, these representative citizens concluded that they would cut spending by $49 billion (from defense, social security and infrastructure[sic]) and raise taxes by $70 billion (on "sin", gasoline and the rich).

Even when citizens were involved in a less intensive manner, providing information and above all asking for their specific advice was still highly effective. A survey of a randomly selected group of 1,000 Americans, who examined closely the same range of options usually considered by Congress, favored slashing the deficit by 62%, significantly more than the President or Congress are considering. The 1,000 informed and consulted citizens cut the deficit to $131 billion (Republicans) and $144 billion (Democrats).

How could the public at large be directly involved in the choices at hand? The answer, granted, is somewhat far-fetched. Imagine that after consultation with Congress that the President addressed the public one Sunday afternoon. Instead of merely exhorting us to sacrifice, he would outline, say, three alternative ways in which the deficit might be curtailed. One might include a VAT, which contains higher taxes on sin and energy and lower (or no) taxes on food, books, some forms of housing and health care. The second package would entail raising taxes on the rich and scaling back entitlements. The third -- on higher income taxes across the board and cuts in numerous government services. All would include the same amount of cuts in defense and foreign aid. The key is that all the options should have been previously agreed upon by the President and Congress. This requirement ensures that whatever the public favors will be enacted and that the suggested plebiscity serves to round off and deepen representative democracy -- but not replace it. Oddly enough, the President and Congress might find it easier to reach an agreement on three options rather than one because it might require less consensus-building.

Rather than giving an immediate response, the public would be accorded time, say until Tuesday evening, to deliberate on the options and discuss them with one another. Without any government prodding, the next forty-eight hours would turn into one giant teach-in, with most editorials and radio and television shows discussing what we should cut rather than whether. On Tuesday evening the White House would open a set of telepollers, allowing millions of people to call in their responses. (Simple devices must be built in to avoid "ballot" stuffing. For instance, people might be asked to dial in their social security numbers and be informed that if the computer finds two responses preceded by the same social security number, both would be thrown out automatically.)

This may seem farfetched even in the age of 800 numbers and interactive TV. However, without finding some way to actively involve the re-engaged public, beyond a few televised town hall like meetings, significant deficit reduction is unlikely to muster the broad and strong civic support it requires.

4. Build credibility into the program.

When Alan Greenspan, the chairman of the Federal Reserve, recently testified before Congress, he hinted that if there was to be a "real" deficit reduction package, the Federal Reserve might well help nudge down interest rates. Greenspan did not explain why he introduced a distinction between two breeds of deficit reduction: real vs. unreal. He hardly needed to. The public is quite aware of what Greenspan was referring to. We have already had several grand White House/Congressional deals that promised to cut expenditures to provide for both some program expansion and deficit reduction. Later, the cuts turned out to be largely illusory while the new expenses were all too real, causing even more humongous deficits.

The most famous of these unreal budget deals is the Stockman magic asterisk. When Reagan submitted his first budget proposal to Congress, the figures would not add up; there were more expenditures than revenues. The gap was "closed" with an asterisk that indicated that $44 billion of expenditures to be cut were "to be identified." After Congress approved the budget, these cuts were never made and the deficit swelled by that much more.

Other favorite sleights-of-hand include optimistic assumptions about the future growth rates of the economy (leading one to assume this will yield higher tax revenues), shifting military pay dates from one fiscal year to the next, and sweeping costly items off the budget. For the Clinton administration suggestions that introducing "managed competition" would yield major savings in health care could turn out to be one such false budgetary assumption.

Once one accepts that "real" cuts must be made if the deficit reduction is to be able to deliver the promised results and gain the public trust, there is a long list of devices that could help enforce the belt-tightening commitments, although none of them can be made iron-clad. Using realistic rather than rosy assumptions about the future of interest rates, inflation, and growth; multi-year commitments; strong enforcement mechanisms (e.g. requiring a super majority to raise expenditures mid-year), procedures for further cutting expenditures if revenues fall below limits (or raising taxes further if expenditures exceed forecasts) are all of merit. It might be difficult to ask from politicians, to be upfront about what must be done. However, given the public state of mind, straight talk might work better than politics-as-usual, at least at this time.

All this may seem a lot of steps to court the public. However, without actively involving the citizenry, the President will be left to the tender mercies of Congress, many of whose members are deeply in hock to special interests. And only if the public will be truly involved, will it support the considerable belt tightening the accumulating debt seems to require. Moreover, an informed and consulted public will turn out to be a much more supportive partner than a public merely drawn in. With the proper attention, a swell dancer might be coaxed out of that gorilla suit.

Amitai Etzioni is the author of the forthcoming book The Spirit of Community, (Simon and Schuster, 1994) and editor of the communitarian quarterly, The Responsive Community. He may be reached at etzioni@gwu.edu.

 

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