Faced with a staggering, automatic tax increase in the midst of a severe recession, authoritative voices are lifted in both the US East and West for a major tax cut.
In Washington, Walter W. Heller, who was a top economic adviser of Presidents Kennedy and Johnson, declares, "We are in the midst of one of history's sharpest swings toward fiscal restriction." He urges a tax cut of $20 billion to $30 billion.
On the West Coast, Ronald Reagan simultaneously urges an immediate tax cut.
Whether the proposals will stampede Congress into quick action in the remaining 50 working days of the session remains to be seen. And the public rubbed its eyes at the sudden shift in signals from a "balance-the-budget" drive , intended to slow inflation, to a push for tax cuts aimed at slowing unemployment.
The country has been conditioned to believe that a tax cut is inflationary. "That's ridiculous," Mr. Heller told reporters at breakfast here. He argues that with no change in existing tax rates the tax bite will increase enourmously , just at a time when unemployment is swelling.
Congress has already written a big automatic increase in social security taxes into the law, going into effect Jan. 1, 1981. Oil "windfall" profits already are being taxed, and as oil prices rise the tax automatically increases. They may reach $27 billion in 1981. There also is so-called "bracket creep," says Mr. Heller -- the effect of inflation in putting individual taxpayers into higher tax brackets.
Thus, Mr. Heller says he believes that the proposed new, so-called tax "cuts" simply would cancel out automatic tax increases already written into law before recession struck. This view is shared impressively by economists from coast to coast and embraced by Ronald Reagan on one side and Alfred E. Kahn, President Carter's chief inflation fighter, on the other.
Whether the bewildered public can adjust to the sudden shift of emphasis, just before an election, remains to be seen.
Mr. Heller, long considered a "liberal" economist, faults President Carter for not having educated the nation in the turn-around situation as it developed. However, he finds much to praise in the President's overall performance.He gives Mr. Carter a "B," or maybe a "B-plus," for effort, but only passing marks for explanations.
Here are policies for which Mr. Heller gives the President high marks: Mr. Carter has been willing to "induce a major recession in an election year" to fight inflation; he has blocked rivers-and-harbors "pork-barrel" bills and paid a heavy political price; he has reduced or eliminated regulations and speeded up decontrol of gas and oil; he has fought tariff interests, promoted a restrictive fiscal policy, and tightened wage-price policy; he rejected wage-price controls; he has made a genuine cutback in nondefense spending.
"I was surprised myself when I added up so many sound elements of economic policy" Mr. Heller said. "But somehow it hasn't jelled."
Why? Mr. Heller faults the President "for not having done more jawboning," and for zig-zagging and being "too conservative" in some initiatives.
He charges that "both ends of Pennsylvania Avenue" have gone through the "budget-balancing charade." He believes the recession is taking care of inflation, momentarily at least. Real government spending has been decreased, he says: The budget is 7 percent over a year ago in nominal terms but 3 percent smaller in real terms. Defense spending has increased $19 billion. In nondefense spending the budget cut is more than 5 percent.
Perhaps the President and Congress have "overdone it," Mr. Heller thinks, in the face of sharp recession.
Mr. Heller sees a "surge of capital investment in the '80s," a consumer price inflation rate down to 6 percent by election, and a big jump in unemployment that will continue in 1981 maybe to 9 or 9 1/2 percent.