Contending tax bills: how 'sweet' they are
Gone is President Reagan's hope of forging a "clean" tax-cut bill, designed to free a lot of upper-income money for investment in new jobs and higher productivity.Skip to next paragraph
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That spare design -- based on a 30 percent, across-the-board income tax cut over three years, plus accelerated depreciation for business -- would have had none of the "sweeteners" that now adorn the President's favored bill.
Such sweeteners include tax relief for some oil producers, reduction of the "marriage penalty" for two-earner couples, indexing to eliminate "bracket creep, " effective elimination of most estate taxes, and others.
Earlier, Mr. Reagan and aides had wanted no such items in this year's tax bill -- not because they disliked the items as such, but because they would cut US Treasury revenues and militate against the investment rationale of the "clean" tax-cut bill.
That rationale was based on a concept that Democrats could not accept -- that the rich should get more tax relief, because they had more money to invest.
Rich people, according to the supply-side economists who have the President's ear, would save and invest most of their massive tax savings, thus making more money available for mortgages, auto loans, and other aids to battered industries.
House Democratic leaders challenged the whole concept on three scores:
* The economic reasoning behind the President's program, Democrats contend, is faulty, or at least risky.A massive income tax cut, these critics say, is likely to spur consumption and add to inflationary pressures.
* Loss of tax revenues would make it harder to balance the federal budget by 1984, which is Reagan's goal.
"If things do not work out [as the White House expects]," says Rep. James R. Jones (D) of Oklahoma, chairman of the House Budget Committee, "you have in place a mechanism for growing budget deficits."
* The White House tax program is inequitable, favoring the well-to-do.
When the Democratic alternative tax plan emerged from the House Ways and Means Committee, chaired by Rep. Dan Rostenkowski (D) of Illinois, tax relief was centered on "middle class" Americans, earnings $15,000 to $50,000.
Then began a bidding war to win the votes of conservative Democrats, 29 of whom had defected to support President Reagan on the 1982 budget.
By now both House tax bills -- the committee version and a Republican-drafted bill which Reagan calls a "bipartisan" measure -- bristle with secondary tax benefits designed to attract congressional support.
On the Senate side, a bill drafted by the Republican-controlled Finance Committee boasts its own share of Christmas-tree sweeteners.
This bill is virtually certain to be approved by the full Senate on July 29. The great question mark hangs over the House, which on the same day will choose either the Ways and Means Committee bill or the Republican- drafted alternative, supported by the President.
Whichever House bill prevails will go to a House-Senate conference for reconciliation with the Senate version. From the conference will emerge a single bill that -- after approval by both chambers -- goes to Reagan for signing.
A current estimate by the Congressional Joint Committee on Taxation concludes that the House Democratic bill would cost the Treasury more in lost revenue than the Republican alternative in the period 1981 to 1983, but that the GOP version would be more expensive over a six-year period.
All this, presumably, means little to the average taxpayer, who wants to know: "What's in it for me?"
Over the next three years, as the President told the nation July 27, taxes paid by an individual earning $20,000 a year will increase 22 percent, because of bracket creep and higher social security levies.
The Democratic tax bill, says Reagan, offers a 15 percent tax reduction over two years. A third-year cut is pledged by the Democrats only if White House economic assumptions on inflation, budget deficit, and interest rates come true.
This means, says the President, that the Democrats offer only an assured 15 percent tax cut, against a 22 percent tax increase. His own three-year plan, the President says, would give 25 percent tax relief -- just edging out built-in tax increases.
If the President's own assumptions about the economy prove to be right, Democratic leaders reply, citizens have no cause for concern. They will get their third year of tax relief from Congress.