EASING U.S. TAX BURDEN WOULD BE NEXT GOOD STEP

The news Wednesday was welcome. With prodding from the Bush administration, the Federal Reserve dropped its key interest rate to the lowest level in two decades. The move was made to counter an economic downturn that won't seem to go away; a lowering of interest rates could be a stimulus needed for business expansion and more jobs. Another step under consideration should be implemented: an easing of the tax burden on Americans.

President Bush is pushing the buttons within his control to combat this recalcitrant economic slump. At his behest, the Federal Reserve has cut the interest rate it charges on loans to member banks five times since July 1990, the most recent time this week. The discount rate is now 4.5 percent, its lowest level since 1973. With this monetary policy positioned in a positive way, the next step needed, also within Bush's power of persuasion, is a tax cut that will lessen the load on Americans and jolt consumer confidence.

Particularly hard-hit by tax pressures are America's families. A recent study by The Heritage Foundation showed that the average family of four paid two percent of its income in federal taxes in 1948. That same average family pays 24 percent today. By contrast, the personal exemption for children is losing ground. A family of four got a $600 tax exemption per person in 1948, about 20 percent of its total income; in 1989, the personal exemption for this family was $2,150, but that's about six percent of its income.

Clearly, federal tax policies are not in step with helping the American economy rebound. Various factions within the Bush administration are pushing for tax cuts; the president should heed their advice. One scenario that seems plausible and politically workable would be linking a cut in the capital gains tax (which Bush and most in Congress support, but was killed by Senate Majority Leader George Mitchell last year) with a cut in Social Security payroll taxes, an action championed by Democrats.

Doesn't that sound easy? Well, it isn't, and we don't mean to imply that. Last week, the federal government announced a record budget deficit for the fiscal year that ended Sept. 30: the U.S. went $268.7 billion in the red. Cutting revenues in the face of that might fly in the face of logic. However, the treasury gains nothing from a stagnant economy; by some estimates, a quarter of this bench-mark deficit was caused by reductions in tax receipts and increased costs in unemployment benefits caused by the recession. If the "powers that spend" in Washington would demonstrate some restraint, tax cuts would not increase the deficit. On the contrary, improving the economic health of America should help resolve federal budget problems.

We applaud the move to lower interest rates. Easing the tax burden is the next step needed.