Shock Treatment

By John Greenwald

HERE IT COMES AGAIN, THAT HARSH Ross Perot plan. Whoever would have expected that a tract on deficit reduction could captivate people and rank as a best- selling book? In United We Stand, Perot tells how he would raise gasoline taxes 50 cents per gal., boost the top income-tax rate from 31% to 33% and whack 10% out of spending for programs ranging from medical research to highway construction. The goal of such tough actions: to slash the federal deficit and balance the budget in five years. "What Perot has done is to put some real beef on the table," says Robert Reischauer, director of the Congressional Budget Office. "It is an important education for the American people to feel the type of sacrifice needed to bring the deficit down. Perot is saying, 'You want to be serious about fixing what's wrong? It's going to involve things like this.' "

But would all this be good for the ailing U.S. economy? Not right now, say many economists. They concede that the deficit soaks up savings that could better be used to create jobs and build new factories. But they contend that an all-out attack on it next year would take money from people's pockets and hurt the economy. Acknowledging the point, the Perot camp says its plan would not take effect until 1994 at the earliest. Says John White, an Eastman Kodak vice president who was the principal architect of the plan: "If this economy were to continue to be like it is, I certainly wouldn't start this plan. I think you would have to look to stimulus."

Apart from the question of timing, many experts and just plain folk welcome Perot's plan as a credible blueprint for paring the deficit, which is now growing at a runaway rate of $310 billion a year. Such a program would scarcely pass Congress, however, because lawmakers embrace fiscal responsibility in theory but recoil from it in practice out of fear of angering voters. Yet the plan could take hold if the U.S. could somehow reach a consensus to divvy up the burden. "The only way you'll ever get political agreement is to promise that everyone will share the pain," says Isabel Sawhill, a budget analyst at the Urban Institute, which studies social and economic problems. "My reaction is that this plan spreads the pain quite broadly."

Perot takes direct aim at the wealthy and the upper middle class by increasing a host of income taxes. His proposals range from raising the top bracket to limiting interest deductions on home mortgages. Economists call such tax hikes "progressive" because they increase the burden on those with the ability to pay. And some well-heeled executives say they would go along with the program. Declares Dan Cotter, chief executive of the True Value hardware store chain: "If someone came into the presidency and said, 'I need x amount of increased taxes for the next two years, and all of it will go to reducing the deficit,' he would get it." Concurs Helene Curtis chairman Ronald Gidwitz: "Somewhere, somehow, sometime, people are going to give up things that are important to them, because other things, like jobs and economic growth, are ultimately going to be even more important."

Just as Perot's income-tax hikes are aimed at the comfortable, so his gasoline and tobacco-tax increases would sock it to the less affluent. Economists call sales taxes "regressive" because they take a larger share of income from the poor and middle class than from the wealthy. Even so, many experts say these proposals would make good economic and social sense. The increased tobacco tax would discourage smoking and reduce the country's $20 billion-a-year medical bill for smoking-related diseases. At the same time, the hike in gas taxes would be the largest money raiser in Perot's program and would help curb U.S. consumption of foreign oil as well as reduce air pollution.

Perot gets lower marks for his proposal to save $108 billion by hacking away at so-called discretionary spending. Critics say his plans are indiscriminate and fail to make tough choices. Perot would call on federal departments to eliminate unneeded programs and make 10% across-the-board reductions in all ( other activities. "Some of these cuts could be debilitating to the economy and the fabric of the social system," warns Reischauer. "You might question how much you want to cut immigration, the federal prison system, meat inspection, the Centers for Disease Control and the Securities and Exchange Commission, just to take a few examples."

Perot is exasperatingly vague about his plans to save $141 billion by controlling Medicare costs and reforming the health-care system. He has so far proposed little more than a federal agency to oversee the reforms and help set a national health policy. "There's not a single real specific on how we save $141 billion," says Robert Greenstein, director of the Center on Budget and Policy Priorities, a Washington think tank. Says Reischauer: "He says he can make big savings in Medicare and Medicaid, but he hasn't laid out the areas where those savings might occur."

Despite such shortcomings, the Perot plan could well be a landmark in American politics. "This is the most detailed austerity program ever put in front of people," says Rudolph Penner, a former CBO director. "No one else has put together anything quite like it. It is distinguished mainly by its honesty." If the program's timing is not quite right and its chances of political success are negligible, Perot has nonetheless shown how to attack a budget deficit that will have to be cut down to size before the U.S. economy can return to healthy, long-term growth.

CHART: NOT AVAILABLE

CREDIT: TIME Graphic by Joe Lertola

CAPTION: SPREADING THE PAIN

Among the tax increases in Perot's deficit-cutting plan:

With reporting by S.C. Gwynne/Washington, William McWhirter/Chicago and David Seideman/New York