Next year's projected federal budget deficit weighs in at over $450 billion. The Bush administration has proposed some $15 billion in cuts to various federal programs as a way of beginning to deal with the deficit, but most observers expect that once Congress gets finished with the budget, most of these cuts will have been restored under political pressure from affected constituencies. It would seem, then, that the conventional approach to deficit management doesn't work very well. Are there other approaches that might?

		Stephen E. Spear, of Swissvale, is a professor of economics at the Tepper School of Business at Carnegie Mellon University.

Economists like to organize their thinking around costs and benefits, and one approach for thinking about deficit reduction is to invoke what we call the "benefit principle" of public spending. This principle says that when we decide to spend money on a public program, if we can identify who benefits from the spending, that group should pay the taxes that fund the program.

A good example of this is the way taxes on gasoline get used to build and maintain highways. The main advantage of looking at public spending through the lens of the benefit principle is that it looks at both the revenue side of the equation, and the spending side.

What does the benefit principle tell us about the current deficit? A good starting point is with the Bush tax cuts, particularly if they are made permanent, as the president wishes. Can we identify any specific benefits that the people who were paying these taxes received in exchange for their tax dollars?

To answer this question, we need to look at who received the bulk of the tax cuts. There has been a lot of discussion in the media about how most of the cuts have gone to the wealthy. This is true: wealthy people pay the most taxes to begin with.

One might not think that wealthy people need much in the way of government help. They don't, once they become wealthy. But I would argue that the people who received the cut have in fact gotten significant government help over their lives, and ought to rethink their positions on the politics of taxation. If we look at the demographics of wealth, the most important determinant of how wealthy you are is your age.

A recent National Bureau of Economic Research report provides data indicating that 76 percent of accumulated wealth in the decade between 1992 and 2002 was in the hands of households headed by people over the age of 50. This is hardly surprising. People reach their peak earnings potential in late middle age, and most of these households have been accumulating wealth over the years in the form of retirement and personal savings.

What government benefits have these wealthy households received that they ought to be paying for? In the 30 to 50 years prior to achieving wealthy status, these households enjoyed a number of significant benefits. These included the deductibility of home mortgage interest, the deductibility of property taxes (which largely support public education), exclusion of employer contributions for health-care insurance, direct federal support of public education at both K-12 and postsecondary levels, together with various education-related tax deductions, standard deductions for child support and direct child care credits.

In 2004, these expenditures amounted to about $315 billion. Add to this another $170 billion that the states spend to support their public university systems, and we get a total benefit of $485 billion that our government gives young families to help them get started on providing homes and education for themselves and their children.

I would argue from the benefit principle that the quid pro quo for the benefits young families enjoy should be covering the costs of providing the same benefits to younger families when they are best able to afford it -- when they reach the peak years for wealth in late middle age. This is obviously an income transfer similar to Social Security, though flowing in the other direction. However, it's one that seems sensible, at least in a society that values its young people.

From the cost-benefit perspective, then, we have an answer to the deficit conundrum. If we have concluded that the benefits the young enjoy aren't worth the taxes it costs to pay for them, they should be eliminated.

On the other hand, if you feel as I do, that these benefits are important for ensuring family stability and promoting educational opportunities for our children, then those of us in our fiscal prime shouldn't begrudge the taxes we pay to support this. After all, we enjoyed the same benefits at the expense of our elders.