Tax-cut talk grows milder as fresh warnings surface
Washington — While Ronald Reagan and President Carter battle over rival versions of tax cuts, a spokesman for the conservative American Enterprise Institute says, "Hold on; wait a bit."
Rudolph G Penner, director of tax studies for the nonprofit AEI research organization argues that tax cuts should be delayed "until some concrete signs appear that the spending process is under control."
Carter-reagan tax-cut differences have narrowed dramatically during the campaign, though Mr. Reagan is still pushing for quick action. The debate comes at a time of economic turmoil. The annual rate of inflation jumped from 6 to 10 percent between 1977 and mid-1980; unemployment rose from 7 percent to 7.8 percent; the gross national product has been falling at a high 9 percent rate; and productivity (measured at output per hour of work) is falling at a 3 percent rate.
Says Massachusetts Institute of Technology economist Lester C. Thurow, "These are the dry statistics of a first-class economic disaster."
Vice-President Walter F. Mondale, has charged that Mr. Reagan's proposed across- the-board cuts in the graduated income tax of 10 percent a year for three years would bankrupt the government. Last month Reagan substantially modified his position in the direction of smaller tax cuts and more savings. Still, he wants the tax cuts at once; Mr. Carter, who also favors a tax cut, recommends a smaller one later on.
The two views have come almost within touching distance.
Now comes the nonpolitical analysis of the AEI expert, representing an organization viewpoints. It is a yes-but response. Says Mr. Penner, selected tax cuts would stimulate lagging American industry and output by providing needed capital. Also tax cuts would aid those affected by inflationary "bracket creep" -- those whose incomes rise into higher tax brackets because the dollar has depreciated.
"An immediate tax cut seemed desirable," Mr. Penner says, "when it appeared that 1981 outlays would be held below $620 billion even in the face of a serious recession.
But Penner notes that outlays have reached an estimated $633.8 billion, "and there is little reason to believe that the upward adjustments have ended. Spending is truley out of contorl. . . ."
And so Penner reaches the uncomfortable conclusion: no deficit cut, no tax cut.
"Until some concrete signs appear that the spending process is under control, or that tax revenues have caught up with the uncontrolled path, I reluctantly conclude that there should not be tax cuts in our near future."
The Penner view is not popular in an election year, and it is not shared by all economists. Harsh economic decisions will remiain no matter wh wins the elections. some conservative economists have come to the support of Reagan for tax cuts: Irving Kristol, senior fellow at the AEI, declares:
"Our economic problems are not intractable. We can bring down -- are bringing down -- the rate of inflation. We can afford a tax cut without creating economic chaos."
In a striking reformulation of his economic views Sept. 9, Reagan jettisoned some earlier proposals.He still favors the 30 percent tax cut, known as the Kemp-Roth proposal, but drops the argument that it would generate more revenues than it would lose. He also shelves earlier desires to return to the gold standard.