August 11, 1991

Large Migration to Germany Germany is faced with an increasing invasion of Eastern Europeans fleeing insecurity and poverty in their homelands. Page 12.

Just when everyone knew the economy was recovering, cracks are being noticed again. The cracks are in the mountain of credit that was built up in the past decade, and it is fair to say that their existence is not news. They spooked the markets last fall, but after that they were not so much papered over as dismissed as irrelevant.

OIL companies, faced with a market that has stopped expanding, are fighting one another for customers as vigorously as they are opposing a Long Island Lighting Company campaign to add gas customers. "There is no doubt that the market is getting more competitive because of Lilco, other oil-heating companies and the poor economy," said JasonSalzman, marketing director of Slomin's Inc. an oil company in Hicksville. "You're seeing oil companies offering free service contracts, a set amount of oil for free and free oil-burner equipment, all in an attempt to get customers. But the catch with these offers is that the customers have to agree to be locked up with these companies for an agreed-upon time."

TEN years ago President Reagan laid the foundations of the Reagan revolution by signing two laws so sweeping and ambitious that they overshadow most of the legislation passed since then. Mr. Reagan's historic package of tax and budget reductions cut individual income tax rates by 23 percent over three years, and to an astonishing degree those laws, signed Aug. 13, 1981, still shape the nation's political debate. Politicians still fiercely argue the fairness of those changes and the merits of cutting taxes as a way to stimulate economic growth. But the relentless demand for Federal largess, the growth of social insurance benefits and the nation's military buildup long ago overwhelmed the budget cuts. Social Security outlays grew 90 percent in the last decade, while spending for Medicaid and Medicare has nearly tripled. Still, Jack F. Kemp, spiritual father of the 1981 tax cuts, says they had a lasting legacy. "I doubt, in our lifetime or our children's lifetime, that we'll ever go back to a steeply graduated and progressive income tax system" with top rates of 70 percent or higher, he said last week in an interview. The most important and permanent of all the 1981 tax changes is probably the indexing of tax brackets, which prevents the automatic increase in tax rates that occurs when wages and salaries increase as a result of inflation. And is the overall tax burden any lighter now? Total Federal, state and local tax receipts declined as a percentage of gross national product from 1982 to 1984, but gradually climbed back to the level where they were when Mr. Reagan took office: slightly more than 27 percent of G.N.P. C. Eugene Steuerle, one of the nation's foremost experts on tax policy, who was Deputy Assistant Secretary of the Treasury from 1987 to 1989, said that after a round of state tax cuts in the late 1970's and the Federal income tax cut in 1981, state and local governments increased taxes in the ensuing decade. At least 33 states have raised taxes this year as they wrestle with serious fiscal problems. To be sure, Federal income tax rates are lower today, but Social Security payroll taxes are higher. About 32.5 million families pay more in Social Security payroll taxes than in income taxes, the Congressional Budget Office has estimated. The tax revolt of the late 1970's and early 80's reduced overall levels of taxation only "slightly and temporarily," said Mr. Steuerle. It focused on two of the most unpopular levies, the income tax and the property tax, but did nothing to slow the growth in Social Security taxes, he said. President Bush has resisted a proposal by Senator Daniel Patrick Moynihan to cut Social Security payroll taxes. The magnitude of the 1981 tax cuts is such that if all their provisions were still in effect, they would have reduced Federal tax receipts by $322 billion last year. In fact, almost two-thirds of the revenue loss has been offset by tax increases and other changes since 1981. In 1986, Congress lowered income tax rates again, but significantly broadened the definition of taxable income, curtailing tax shelters, limiting many personal deductions and repealing the investment tax credit for businesses. In "The Tax Decade," a book to be published this fall by the Urban Institute Press, Mr. Steuerle reviews the extraordinary outpouring of tax legislation in the last 10 years and concludes that the result for most income groups was "almost no change in average tax rates." However, in the 1980's the tax rate on the last dollar of earnings -- the rate most likely to affect individual decisions about work and savings -- did drop for many people. For example, the top rate for the most affluent people dropped from 70 percent in 1980 to less than half that today. But Mr. Kemp, now Secretary of Housing and Urban Development, expresses despair that "we have forgotten the lessons of the early 1980's." Underlining the rift in Republican ranks, he said, "The budget agreement engineered last year by my good friend Dick Darman inadvertently paralyzes the President's call for a cut in the capital gains tax rate," because such a cut would produce revenue losses, according to conventional estimates. Mr. Darman is the Federal budget director. When Mr. Reagan cut taxes, he "did it on faith," Mr. Kemp said. But now, he added, "we're listening to econometric models that tell us lowering the capital gains tax will lose revenue, and lowering the payroll tax will destroy the economy." Mr. Bush abandoned his campaign pledge of "no new taxes" last year and supported a budget package that raises more than $150 billion of additional revenue over five years. He continues to call for a cut in the capital gains tax, even espousing it in a speech to low-income people at a housing project in St. Louis a few months ago. Congressional Democrats have blocked the capital gains proposal on the ground that it favors the wealthy -- it would lower the tax on profits from the sale of stocks, bonds, real estate and other assets. On Tuesday, at a 10th anniversary celebration sponsored by the Heritage Foundation, Mr. Kemp will speak and there will be a videotaped message from Mr. Reagan. But Mr. Bush, who once derided the Reagan policy as "voodoo economics," was not invited. "Inviting Bush to this event would have been like inviting a nudist to a Moral Majority meeting," said Burton Yale Pines, senior vice president of the foundation. While the overall tax burden has not changed much, there have been clear winners and losers from the changes in the last decade, particularly the Tax Reform Act of 1986, intended by Mr. Reagan to encourage "risk-taking, innovation and that old American spirit of enterprise." Among the losers were people who had invested heavily in tax shelters. The biggest winners included wage earners with few deductions, credits or exclusions under the old tax law.

When standard chemotherapy failed to stem the growth of Ruth Soukup's lung cancer and made her violently ill, doctors prescribed a newer medicine that had proved successful in rigorous patient trials. The new drug, carboplatin, shrank the tumor with few side effects, but Medicare refused to pay the $1,000-a-month cost. The problem was that while the drug is listed in the major physician guides as a treatment for lung cancer the Food and Drug Administration label for the drug designates it only as a treatment for tumors of the ovaries.

HIDDEN JOURNEY A Spiritual Awakening. By Andrew Harvey. 253 pp. New York: Henry Holt & Company. $22.50. ON A SPACESHIP WITH BEELZEBUB By a Grandson of Gurdjieff. By David Kherdian. 282 pp. New York: Globe Press Books. $24.95.

REPORTS of Lyme disease on the Island are increasing this year over last year, but experts say the figures do not indicate what is occurring. The public is increasingly alert to the symptoms of the disease, and most new cases are recent victims seeking early diagnosis and treatment, the experts say.

Lax gun control laws in the United States and a hunger for weapons in Latin America have combined to make Florida the hub of a booming illegal trade in arms, say law-enforcement and military officials here and abroad. Alarmed at the flow of weapons, from cheap pistols to sophisticated assault rifles, Latin American and Caribbean governments are urging the United States to stop the traffic, which in the last decade has become so extensive and well-organized that gun-smuggling groups can now offer the most powerful weapons on the market to clients anywhere in the world.

When pressed, Bernard B. Beal will say that he made his most critical career decision at gunpoint. It was the summer of 1972, and Mr. Beal, the son of an elevator operator in Brooklyn, had just finished his scholarship-sponsored studies at the Wooster School in Danbury, Conn. He had applied to various colleges, but preferred entrepreneurship. So he took his college fund and bought a stake in a fast-food restaurant in the Bronx, which he helped manage. When a gunman arrived one hot night, the young manager tried to bolt and a bullet grazed his leg. Bernard Beal decided that maybe college was a better idea after all. College and an M.B.A. from Stanford led to a nine-year stint at E. F. Hutton, now Shearson Lehman Brothers. Then, in 1988, Mr. Beal at last became an entrepreneur: He joined with several partners to form M. R. Beal & Company, one of the fastest-growing minority-owned investment banking firms on Wall Street.

ENCOUNTERING MARY From La Salette to Medjugorje. By Sandra L. Zimdars-Swartz. Illustrated. 342 pp. Princeton, N.J.: Princeton University Press. $24.95.

The economic recovery that had been widely expected since late spring now seems much less certain, raising the likelihood that a strong rebound in hiring, wages and retail sales will not occur before the fall, at the earliest. Many economists have reached that conclusion in recent days after confronting statistics and surveys that measure the economy's recent performance. Economic conditions have clearly improved since the spring, the data show, but the progress toward recovery seems to have temporarily halted.

John Daly turned the theme of the 73d P.G.A. Championship into the making of a folk hero today by continuing to hit some of the longest drives ever seen in competition while building a three-shot lead going into the final round. The 25-year-old tour rookie showed no letup in his assault on the Crooked Stick Golf Club course by shooting a three-under-par 69 for a 54-hole total of 11-under-par 205.