New Tactics at Half Time

• Share

(4 of 5)

After some eleventh-hour fluttering, the White House also settled last week on the outlines of its tax proposals. Reagan was expected to ask Congress to enact immediately a levy on imported oil and a surcharge on individual income taxes that would not go into effect until Oct. 1, 1985, and then only if the deficit in the fiscal year that begins on that date seems likely to exceed 2% of G.N.P. That would work out to around $100 billion of red ink a year. The President's hope is that spending cuts and economic recovery will make the increase unnecessary. But, says one high official, the stand-by proposal "has the double advantage of not raising taxes now that would hinder economic recovery and showing the capital markets that something will be done about the deficit in the long run."

Reagan was expected to leave himself another out: the tax boosts would take effect only if Congress in the next two years fails to enact a tax simplification plan. The President intends to pledge that he will study and eventually submit a proposal that would trade wholesale repeal of exemptions and deductions for a lower and narrower range of income tax rates than the present 14% to 50%. That would be a variation of the flat-tax idea that many reformers, both conservative and liberal, urge on grounds of both simplicity and equity (since everyone with approximately the same income would pay the same tax). Said Reagan last week: "The top priority in taxes in this country is to have a tax system that people can understand."

Whatever Reagan's final detailed proposals might be, Congress is virtually certain to demand a faster and more certain drop in the deficit than the President envisions. Democrats, with some Republican support, will howl that Reagan's plans constitute anything but an equitable sharing of sacrifice and that the poor have been forced to give up far too much already. They will insist on increases in some social spending, accompanied by deeper slashes out of the Pentagon budget than Reagan will recommend.

Even some of the President's aides consider the proposal for stand-by tax increases to be a "Rube Goldberg" scheme that the legislature will reject. The tax-writing committees of Congress are loath to let the President specify the conditions under which levies should be raised. Republicans Robert Dole of Kansas, chairman of the Senate Finance Committee, and Barber Conable of New York, a tax expert in the House, put their opposition on the record last week. Many Congressmen and Senators also feel that a plan to raise taxes only if certain conditions prevail is inadequate. They will propose a surcharge that would take effect in late 1985, come what may.