The United State is sinking rapidly into a sizable recession. Yet inflation and the government are increasing taxes sharply. TFew people, in fact, are probably aware of just how much taxes are going up. A member of the staff of Sen. William V. Roth (R) of delaware has put some statistics together to make the point. If President Carter has his way in Congress on tax proposals and if infalation continues at a relatively high rate, the tax burden will increase by 1982, an extra $139 billion in 1983, and an yet another $163 billion in 1984.
If that total tax increase happens -- and it probably won't -- the government's share of national income would increase a couple of percentage points.
The largest tax increase will come from "bracket creep" -- the tendency of inflation to shove individuals into higher income-tax brackets as their wages increase. As a result, for every 10 percent of inflation, the government gets a 16 percent rise in income-tax revenues. That hidden factor will boost taxes each year, starting with $35 billion next year and reaching $80 billion by 1984. This assumes there is no great improvement in the nation's inflation performance.
Social-security taxes will go up each year -- $14 billion next year, $25 billion by 1984.
Decontrol of the price of oil will boost government revenues $7 billion next year and $15 billion by 1984. The net impact of the windfall-profits tax will be $15 billion next year and by 1984, $21 billion. The oil import fee will raise federal revenues annually: $12 billion in 1981 and $19 billion by 1984. President Carter's proposed withholding tax on interest payments and dividends would add $3 billion a year for the next several years.
Senator Roth's staff put these estimates together to argue that the Kemp-Roth bill, providing for a 30 percent cut in individual and corporate income taxes over the next three years, is not so radical as it sounds. It would cut taxes $ 20 billion next year and $136 billion by 1984.
Other tax cuts are in the congressional hopper. One would improve depreciation allowance for business, thereby trimming corporate income taxes by taxes on $200 or $400 of interest income, depending on marriage status. It would save the taxpayers $3 billion next year and $13 billion by 1984.
Add up these possible tax cuts and they come to $25 billion next year, $66 billion in 1982, $121 billion in 1983, and $176 billion in 1984.
Only in 1984, it would be noted, would these tax cuts produce an actual net tax reduction -- $13 billion -- from what the tax level would be without the tax increases (including the one arising from inflation). In 1985, the tax cut would grow to $36 billion as the depreciation-tax factor grew larger. In the years up to 1984, taxes would still increase -- even with Kemp-Roth.
What all this indicates is that so far the Carter administration and Congress have decided to balance the budget primarily by boowith inflation), rather than by slashing expenditures more than marginally. It reflects the political difficulty of cutting programs once they are in place.
As the recession deepens, it seems likely that Congress or the President will decide that a countercyclical tax reduction is necessary. Already, Massachusetts Sen. Paul E. Tsongas (D) has suggested that Congress have a tax cut measure ready for quick passage in the event the recession is deeper than anticipated or the Federal Reserve System holds on to its tight-money policy too long.
Jeffrey A Nichols, chief economist for Argus Research Corporation, notes a curious element of the current presidential primary campaigns. "Ironically," he states, "it is the 'conservative' candidates who would perform the most 'radical' surgery on the tax system."
Former Gov. Ronald Reagan's platform includes the Roth-Kemp proposal. He also would eliminate the double taxation of dividents (first by corporate income taxes, second by personal income taxes on those receiving dividents), and do away with inheritage taxes altogether.
George Bush favors a $20 billion tax reduction, split equally between individual and businesses, including faster write-offs of capital equipment, and a 1 percent cut in the corporate rate for each of the next five years. He also recommends indexation, to reduc "bracket creep."
Rep. John B. Anderson also wants indexation, liberalized depreciation, a $500 exclusion on interest income, no taxation of divident income, and a 10 percent tax credit fr research and development.
A tax cut mood is developing in Washington.