Despite rumblings about tax hikes, don't expect one soon
Congress probably will not reach into citizens' pockets with major new tax legislation this year, and a slowing economy could make widely anticipated tax boosts in 1985 hard to achieve.Skip to next paragraph
Subscribe Today to the Monitor
Without presidential support, attempts this year to cut the deficit by raising taxes will last about as long as ''a one-round fist fight,'' quips Senate Finance Committee chairman Robert Dole (R) of Kansas.
And despite public grumbling from top presidential advisers about the need for tax increases in 1984, President Reagan still opposes the notion.
He is said to think that a major tax bill ''is not the right medicine for the economy right now,'' says John E. Chapoton, assistant Treasury secretary for tax policy.
The conventional wisdom on Capitol Hill is that major tax-writing action will take place after the 1984 election.
But slower economic growth could rewrite that scenario, some economists and congressional staffers are beginning to say.
On Friday the government released revised gross national product (GNP) figures that show that the recovery slowed to a moderate 4.5 percent pace in the final quarter of 1983. The administration expects growth at about that rate for 1984. If the slowdown were to accelerate in 1985, as some forecasters expect, it could be very difficult to raise taxes after the election.
For example, Citibank in New York expects GNP growth to slow to between 1 and 2 percent in the second half of 1985, says bank economist Alan Murray.
''I think there is a good risk that if nothing is done (on the deficit in 1984), it will be too difficult to do in 1985,'' says Martin S. Feldstein, chairman of the President's Council of Economic Advisers. ''If the economy is coming in weak in 1985, it (would be) tough to raise taxes or cut spending a lot at that point.''
When asked about the longer-term outlook for tax action, Senator Dole says he is ''less and less optimistic.'' And a staff member on the tax-writing House Ways and Means Committee adds that the outlook for major post-election action on tax increases depends ''on the economy's performance and on whether the the public will tolerate $200 billion deficits.''
The deficits could affect the economy's performance, Mr. Feldstein warned again last week, this time in a Wall Street Journal interview. The administration's relatively optimistic forecast of 4 percent growth in inflation-adjusted GNP between 1985 and 1988 was based on the assumption of major deficit reductions after the election and could not be achieved with the deficits now projected in the adminstration's budget, he said.
Meanwhile the President's budget chief, David A. Stockman, told Fortune magazine that there are relatively few politically realistic opportunities for trimming the deficit by cutting further into spending.
''Some still think there are vast pockets of fraud, waste, and abuse out there. In fact, nearly every stone has been turned over,'' Mr. Stockman said.
Congress and the administration are expected to agree on a handful of relatively minor tax changes this year, which will ensure that 1985 tax instruction booklets contain some surprises.
For example, the President's budget will suggest ''minor changes in the tax law to increase compliance'' with the tax code, Mr. Chapoton says. Tax shelters, or investments that produce large tax deductions in the first few years an investor holds them, are a special target.
''We are looking at a broad range of changes to deal with tax shelters,'' says Chapoton.
And following a successful one-time tax amnesty in Massachusetts, interest is growing in a similar plan at the national level. Under a tax amnesty, those who have not paid taxes or who have underpaid them can come forward and pay up - with interest - without being subject to tax evasion charges.
House Speaker Thomas P. O'Neill (D) of Massachusetts says he favors a national amnesty. House Ways and Means Committee chairman Dan Rostenkowski (D) of Illinois has agreed to have his staff look into the matter. Meanwhile Senate Finance Committee chairman Dole says the concept is worth a serious look. Dole reports that the President is considering including a tax amnesty in his fiscal 1985 budget.
In addition to minor changes in individual taxation, this year Congress also is likely to pass tax measures covering taxation of the life-insurance industry, leasing arrangements by nonprofit organizations, and industrial development bonds.
None of the changes is expected to alter the fact that the share of the federal government's revenue that comes from taxes on corporate profits has declined sharply. A recent congressional Joint Committee on Taxation study found that companies contributed 28.3 percent of government revenue in budget year 1950 but only 8.1 percent in 1982.
A House Ways and Means source says business ''will be in the line of fire,'' if Congress seeks major revenue boosts in 1985.