Biting The Bullet On Deficits

President Reagan's economic President Reagan's economic policy keeps on churning out contradictory superlatives. Last year Reagan rammed through Congress the largest tax cut in U.S. history: $749 billion over five years. Last week bleary-eyed Senators, under the President's prodding, debated until 4:47 Friday morning before approving the biggest peacetime revenue-raising bill: $98.6 billion over three years. The measure, which seems at odds with the President's celebrated supply-side tax theory, passed by a mere three votes (50 to 47). No Democrat voted for it.

The package of tax hikes and loophole closings is needed to lessen the impact of what is already certain to become another record for the Administration: the nation's largest budget deficit. Reagan's own 1983 budget would have produced a deficit estimated by the Congressional Budget Office at $121 billion. When even leaders of his party rebelled at all that red ink, he supported spending cuts and tax increases that still are expected to leave a deficit of at least $105 billion. Democrats are refusing to support any tax increase at all in an election year. Some had hoped to repeal the final the President's three-year program to reduce individual income taxes by 25%. But Reagan has stubbornly refused to forgo that slash and apparently has the support to keep it intact.

While Democratic Senators voted en masse against the Republican tax package, some of them nonetheless supplied the votes to retain its key element, the withholding by the IRS of 10% of all interest and dividends earned by individuals who have savings accounts or own stocks. This withholding would be applied against taxes owed during the year. Pushed hard by Republicans Robert Dole, chairman of the Senate Finance Committee, and Majority Leader Howard Baker as a way to rebut critics who claim that Reagan's tax and spending cuts unfairly hurt the poor, the proposal was strongly opposed by banks and brokerage firms. They complained, quite validly, that it would cost them heavily in additional paperwork.

Supporters of withholding won with the argument that tax cheating on interest and dividend income was depriving the Government of some $8 billion a year; the Senate bill would recapture $4.3 billion of that. Still, a drive to delete the withholding provision, led by Republican Robert Kasten of Wisconsin and Democrat Ernest Rollings of South Carolina, lost by only three votes. The withholding proposal would have lost if such liberal Democrats as Edward Kennedy of Massachusetts, Alan Cranston of California and Christopher Dodd of Connecticut had not voted against the deletion amendment.

The tax package, which would raise $21 billion in its first year, was fashioned largely by Dole. Its biggest surprise was an attack on the "three-martini lunch," long decried by liberals as a subsidy for the rich. Over the objections of the hotel and restaurant lobby, the Senate voted to reduce by half the deduction allowed corporations for business-related meals and entertainment in town; a traveling businessman or woman would still be able to 5 deduct these expenses in full. This tax increase was added when a proposal to withhold a part of restausrant tips was defeated.