No tax hike but ...
Walter Mondale says that if elected president he will increase taxes in 1985. President Reagan says that he has no ''plans'' for a tax increase next year ... unless federal spending exceeds revenue under certain circumstances.
In other words, the 1984 presidential election campaign is under way and the issue quickly roaring to the forefront is whether - and to what extent - to raise taxes as part of a program to reduce massive federal budget deficits, currently projected to total between $500 billion and $600 billion over the next three years.
What needs to be kept in clear perspective by the American people as the debate gets under way is that no matter how one puts together a deficit-reduction package, tax increases necessarily form a part of the larger equation. Indeed, that was the case in 1982 and again this year, when Congress approved tax increases and President Reagan signed them into law.
It should be noted that further deep spending cuts in the social-welfare area seem almost impossible, given the sharp reductions that were made in the growth of ''safety net'' programs in 1981. Moreover, proposing cuts in entitlement programs geared to the middle class (such as veterans' benefits, social security and medicare, and student loans) will surely lead to a protracted legislative review. That leaves tax increases as a major element of any meaningful deficit-reduction program.
President Reagan has given himself an out on the tax-hike issue. When asked in his press conference Tuesday whether he would rule out an increase next year, he did say ''yes.'' But then he went on to discuss what sounded like some form of contingency tax; that is, a tax hike if federal spending outpaced tax receipts under certain circumstances. In Texas yesterday, Mr. Reagan followed up by pounding Democrats on the tax issue. Texas voters are urged not to ''bury the American dream'' in ''endless tax increases.''
President Reagan, of course, has long opposed going the tax-increase route in general. There seems no reason to assume he has changed his position in that regard, at least when it comes to general tax increases - as contrasted, for example, with changes in the tax system to raise revenue by cracking down on cheaters, hiking excise taxes, etc. But it is also expected that Reagan may well be attempting to buy some time for the moment, in part awaiting two major new reports on federal deficits that will be released around the week of Aug. 6. One , from the administration's own economists, will most likely show that because of a combination of factors - the recent tax-hike, budget-cut, down-payment package signed by the President; increases in employment, which mean more federal tax receipts; and a low inflation rate - future deficit projections will be far lower than has been anticipated. And that same week the Congressional Budget Office is expected to produce a report that, while not quite as upbeat on the deficits, will also show the deficits coming down more than expected for the years 1985, 1986, and 1987.
In other words, Reagan will be able to make a case that action must be taken first on spending cuts, before - as a last resort - turning to prospective tax hikes. Moreover, Reagan could call for tax restructuring as a way of obtaining additional revenues. Such increases could come through ending tax cheating and closing loopholes that now produce a shortfall to the US Treasury of well over $ 100 billion annually.
Reforming the tax structure - although admittedly a difficult legislative challenge in itself - would have the advantage of not only producing some immediate revenue increases but also ending the present hodgepodge tax system. Two major bills now before Congress address the issue of tax simplification, the Democratic Bradley-Gephardt bill and the Republican Kemp-Kasten plan.
Lawmakers should certainly consider such legislation.
