Senate Mixes Signals on ‘Peace Dividend’

WASHINGTON —  In the first skirmish of a new battle over how to spend the so-called “peace dividend,” the Senate sent preliminary and somewhat mixed signals Wednesday on how it will allocate savings from anticipated major reductions in U.S. defense costs this year.

A lopsided 79-19 majority first approved a Democratic plan that would earmark the multibillion-dollar savings in Pentagon outlays to balance the budget and then raise spending for “urgent national priorities” such as education, health care and anti-drug programs. Tax reductions for “working men and women” would get third priority under this plan.

Minutes later, the Senate narrowly defeated a Republican alternative that would devote all of the savings from the defense budget to tax reductions, including a cut in the capital gains tax rate, once the federal budget is balanced. The vote was 50 to 48.

In a way, the skirmish was a sham battle since the sense-of-the-Senate resolution adopted Wednesday is not binding and, as several senators said in the debate, a “peace dividend” may not emerge for years, if ever.

But it indicated how closely the Senate is divided on whether tax cuts should have a higher priority than additional spending as Congress considers the budget in the wake of rapid easing of East-West tensions and the toppling of Communist regimes in Eastern Europe.

It is not entirely a party-line issue, either, as the vote on the second resolution, sponsored by Sen. Phil Gramm (R-Tex.), showed. Eleven Democrats voted with Gramm and seven Republicans voted against his proposal for allocating a “peace dividend” exclusively to tax reduction.

On the resolution that passed--sponsored by Sen. Jim Sasser (D-Tenn.), chairman of the Senate Budget Committee--54 Democrats and 25 Republicans supported it while the 19 dissenting votes were all cast by GOP senators.

While the vote was mainly symbolic, however, the debate was a preview of the controversy that is likely to go on for months and years over what to do with billions of dollars that would have gone for military spending except for the reduced Soviet threat in Europe.

“It’s high time we quit squandering the treasury of this nation for overly sophisticated weapons systems,” said Sasser. “We need to take this peace dividend and apply these funds wisely.”

Gramm countered that any funds cut from the Pentagon should be “returned to America’s taxpayers” in the form of a higher personal exemption, a child care tax deduction, a lower long-term capital gains rate, repeal of the Social Security earnings test for retired persons, expanded research and development tax credits and other incentives for savings and investment.

“Yes, we’re all for tax cuts,” Sasser replied. “I wonder why tax cuts for the wealthy are so wonderful and tax cuts for working Americans are not.” His proposal advocated a third priority to tax cuts for “working men and women” in distributing defense savings.

The Sasser resolution passed by the Senate also calls for using defense savings for balancing the budget first, followed by higher outlays for anti-drug and anti-crime programs, education, health care, the environment, rebuilding the nation’s roads and bridges and giving aid to emerging democracies.

Gramm argued that it would be “a great tragedy” to use any funds from defense cuts for expanding government programs.

“The fruits of the success of freedom . . . should go to the people who won the Cold War, not to the government,” Gramm said.