Tax talk rules the '84 campaign

The debate over tax policy for 1985 and beyond has moved to the center of the political battle this election year. The high level of interest in the subject was evident Tuesday when a standing-room-only crowd packed the opening of Senate Finance Committee hearings on tax reform. A long line of spectators snaked down the hall in the Dirksen Building waiting to gain admission to a session where senators and outside experts lambasted the current tax system for its complexity and alleged unfairness and offered a wide variety of suggestions for fundamental changes in the tax code.

In general the hearing avoided the issue of whether personal income taxes need to be raised to close the yawning gap between federal spending and receipts. The issue of personal income-tax hikes has been the main political volleyball slammed back and forth between the Reagan and Mondale camps for the last two weeks. ''We are not here to get involved in a debate between the candidates over whether a tax increase is necessary,'' said Finance Committee chairman Robert Dole (R) of Kansas.

But the eventual shape of any fundamental change in the tax system will be colored by whether the winner of November's presidential contest favors a boost in taxes and if so, how much money he wants to raise and by what method.

A variety of political and economic forces have pushed the issue of tax policy to the fore.

As for the economy, revised forecasts show deficits continuing at high levels well into the future.

Monday the Congressional Budget Office (CBO) reported that under current law, budget deficits will grow each year between 1984 and 1989 in dollar terms. The deficit for 1989 is put at $263 billion.

The debate over deficits and taxes has also been fueled by concern that high deficits would help keep interest rates at unusually high levels.

Among the political factors was the desire of Democratic presidential candidate Walter F. Mondale to do something bold. This helped lead to the line in his acceptance speech where he said he would propose raising taxes in 1985 and so would President Reagan.

On the GOP side, the President has a personal aversion to high tax rates. According to Reagan biographer Lou Cannon, this aversion took root when Mr. Reagan started to make big money in Hollywood and began to feel the tax system's bite. The President also faces pressure from conservative allies like Rep. Jack Kemp (R) of New York to take a firm stand against tax increases.

In recent days the Mondale and Reagan campaigns have been refining their tax policy positions.

Reagan charged Monday that Mr. Mondale ''is not telling the truth'' when he claims the President will seek tax hikes. The President issued his sharpest denial of tax plans so far when he added,''We have no plans for, nor will I allow any plans for, a tax increase.''

But after lunch with the President this week, Vice-President George Bush said Reagan is keeping his ''options open'' on potential revenue increases. Sunday, the vice-president said Reagan ''will consider'' revenue-raising measures other than personal income tax hikes.

While Mr. Bush and Mr. Reagan seemed to disagree on tax policy, Mr. Mondale huddled Monday with economic advisers to revise a budget-cutting plan drafted in his primary campaign. That plan was based on outdated Reagan figures. Mondale now promises to cut the deficit by two-thirds by the end of his first term. The evils of the deficit are a main theme in the three-day, five-state campaign swing Mondale began Tuesday. Because of the complexity of the subject, the debate over taxes is likely to last at least as long as voters' patience. It is complicated by the fact that each side relies on different economic and budget estimates.

The heightened interest in tax policy leads some in Congress to think fundamantal changes are on the horizon in tax law, whether or not individual income tax rates are raised. Next year will provide ''a once-in-a-lifetime opportunity'' to make ''meaningful changes in our tax system,'' argues Sen. William V. Roth Jr. (R) of Delaware.

But others think strong special-interest groups will resist any move to change a system that currently favors them.

''I am terribly pessimistic about the chances of accomplishing much,'' says Sen. Charles E. Grassley (R) of Iowa.

It is clear that the political cost in closing the deficit could be great. If the deficit is closed half by spending cuts and half by tax increases, then corporate and income taxes would have to be raised 25 percent. This is ''equivalent to a 25 percent surcharge,'' said Emil M. Sunley, director of tax analysis for Deloitte, Haskins & Sells, a large accounting firm.

While the Mondale camp accepted the CBO deficit figures, the White House responded to the CBO report by noting that later this week it will release revised budget estimates showing sharply lower deficits than the CBO expects.

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