A good tax plan

The $50 billion tax revenue plan adopted by the House Ways and Means Committee over the weekend is a step in the right direction toward reducing future massive US federal budget deficits.

American government has always been characterized by a degree of tension between objectives that are necessary for the well-being of the nation and actions that are politically possible. In some periods, such as before the Civil War, the nation veered into difficulty because of an inability to resolve the impasse between the necessary and the possible.

In this regard, the American people have every reason to support the Ways and Means Committee plan. The new taxes would be spread over a four-year period (through fiscal year 1987). They would come through measures aimed at ending tax shelters and tax-accounting abuses, as well as through hiking taxes on liquor, reducing a planned tax cut on cigarettes, and retaining a 3 percent excise tax on phone service that expire next year.

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The House plan is a responsible compromise.

Reducing the massive federal budget deficits - now projected to be in the cumulative range of $600 billion through fiscal year 1987 - is absolutely essential if the nation is to maintain the current economic recovery. Warnings about the impact of future deficits on the economy are now being heard from many quarters - Federal Reserve Board chairman Paul Volcker, the Congressional Budget Office, the nation's governors who met recently in Washington, private economists, and the Wall Street financial community. The stock market declines of recent weeks clearly underscore investor concerns that the deficits will remain so large in coming years that government borrowings in private money markets will drive up interest rates and thus abort the recovery.

The very fact that the economy continues to show remarkable strength only adds to the urgency to get about the task of reducing deficits. Indeed, the latest index of leading economic indicators climbed 1.1 percent in January. For technical reasons, month-to-month gains do not always reflect what is happening in the economy. On the other hand, there seems little doubt but that the economy is now growing smartly, fueled in part by continued consumer spending. And with many Americans set to receive income tax refunds during the weeks ahead - refunds that tend to be spent - that growth is likely to continue, threatening to accelerate inflation and also drive up interest rates. Economists are now revising their growth rates for the current quarter upwards from 5 percent to 6 percent.

Chairman Volcker, for his part, is urging that Congress put together a substantial tax hike-budget cut plan - such as a three-year, $50 -billion-a-year-plan. Obviously, such an approach does not seem likely to emerge from Congress this year. That is why the $50 billion Ways and Means plan is a good starting point.

A final factor is worth noting. Opinion polls show that the public views Congress as more responsible for the deficits than the White House. There is an element of truth in this. Congress in the past has often failed to follow through on budget cuts, while at the same time hiking taxes. But the White House must also share responsibility. It is thus imperative that the administration agree to reduce the rate of increase in military spending, even while accepting tax increases along the lines of the Ways and Means Committee approach.

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