Taxes and aims
PICK up your daily paper, turn on your television set, and it's quickly apparent that Washington's domestic agenda is full and running over: Tax reform and budget reduction dominate the news.Skip to next paragraph
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What needs to be kept in clear perspective amid all the tax simplification and budget talk under way is that many agendas for possible action are being trotted out in the nation's capital. Treasury Secretary Donald Regan touts tax simplification. Budget Director David Stockman's shop urges reductions in middle-class entitlement programs such as farm benefits and veterans aid. But what needs to be carefully identified, and brought to the legislative forefront as lawmakers prepare for the coming congressional session starting early next year, is the nation's agenda - what needs to be done now that can't be done better at some later time.
The institutional process now under way can in some respects be likened to ''dukedom politics.'' In a dukedom, if history is any guide, the dukes would periodically trot out their specific agendas for the king. One day the munitionsmaker would come. Another day the exchequer - to talk finances. Another day the quillmaker, or chief herdsman. And so on. In the current Washington setting, the administrative process involves intricate computer printouts, but the method is not so much different. And one need not be a cynic to recognize something else about all the budget- and tax-oriented discussion: Every new administration faces a two-month or so lull after a presidential election. A newly elected administration tends to fill up that time with Cabinet appointments, studies, and such. An incumbent administration also tends to seek control over the administrative reins by filling up the interregnum period with policy statements.
What is the citizen to make of the process that's going on in Washington? For longtime Washington-watchers, three elements seem important:
* Putting together a new fiscal 1986 budget is a key priority. Such a budget must be fiscally prudent in that every expenditure - including defense - will have to be carefuly justified at a time of soaring federal deficits, projected in the range of $200 billion and up.
* Tax reform - ''simplification'' - is a worthy objective. But tax reform should be a long-range goal. The current progressive federal income tax system has grown up over years of experience. Each 'loophole'' has developed because of legitimate social or personal or corporate needs. Just because a tax system is suddenly made ''simpler'' does not mean that it is thereby made ''fairer.''
* Finally, beyond the issue of fashioning a new budget, and the separate issue of long-range tax reform, the overriding aim on the American economic agenda must be action to curb the deficit. Admittedly, that will not be easy, now that the economy is growing at a much slower pace than earlier this year. It would be particularly unwise to boost personal income taxes at a time of modest growth - thus further slowing the economy.
The Treasury Department's tax-reform plan is surely a good starting point for further legislative review. Few experts expect the plan to become law, at least in this form. Tax reform should be phased in over time rather than wholesale. Reforms ought not be made retroactive. The prospect of retroactive change inhibits both individual and corporate financial planning.
We have not yet fully studied all aspects of the simplification plan. Some elements, however, seem questionable. Would it really be in the nation's best interest to scrap the current federal deduction for state and local income taxes? Taxpayers in high state or local tax areas would be hard hit. Many states would have to revise their own tax plans accordingly. Why are the current 16 tax brackets, with their built-in progressivity, somehow ''more complicated'' than the three flat-tax brackets? All a taxpayer has to do is look on the appropriate line in the tax forms for his or her bracket. What about scaling back the rapid business write-offs on equipment and buildings and eliminating the 10 percent investment tax credit? Many older manufacturing industries will be hard hit by the first proposal, and many high-tech firms will be hard hit by the second.
The immediate priority for Washington is clear: The federal budget, including defense spending, must be brought under control to reduce deficits. Tax simplification, yes, but after careful review. The budget and the deficit - they are the real issues as Washington looks toward 1985.