Reagan program: Big victory behind, big 'hill' ahead; President has won budget he wants, but three-year tax cut debate rages
Now that President Reagan has won substantially the budget he wants, a harder battle looms over how much and in what way to cut taxes. Somehow, Mr. Reagan and his White House cohorts must persuade lawmakers that a three-year, 30-percent income tax cut will not pile new inflation on the nation.
So far, according to Sen. Robert Dole (R) of Kansas, chairman of the Senate Finance Committee, his committee lacks the votes to pass the Reagan tax program in what a staffer called "pure and simple form."
"The administration," the Senate staffer said, "has not yet convinced committee members that three years of 10 percent across-the-board income tax cuts would not be inflationary."
Momentum appears to be on the President's side, as evidenced by his striking budget victory in the House, where many Democrats sided with the White House.
"It's amazing," said a veteran Capitol Hill staffer, "how many thousands of letters [legislators] are getting from people, telling us to back the President.
"Reagan," he said, "tapped into a great mass of people who really aren't interested in government programs. They want their money back."
The vehicle for getting that money back, many letters say, is a 10 percent income tax cut each year for three years -- just what the President wants.
"Unless inflation turns out to be less than 10 percent," said a congressional source, "or unless people get better than a 10 percent wage hike, they know that even a 10 percent tax cut leaves them financially about where they are now."
Ironically, the 1982 budget just approved by the House assumes that Mr. Reagan's tax-cut program will be put in place. Tax revenues on which the budget is based are those worked out by the White House.
The rival budget offered by the House Budget Committee, by contrast, assumed a one-year tax cut, skewed more in favor of lower-and middle-income Americans -- not an across-the-board reduction.
Though House members may not have meant it that way, they accepted the implications of a three-year Reagan tax cut when they approved the budget proposed by Congressmen Gramm and Latta and defeated the House Budget Committee version.
This does not bind lawmakers where taxes are concerned. The House Ways and Means Committee and the Senate Finance Committee will work out tax bills, send them to House and Senate for a vote, then reconcile differences in conference.
A final tax measure will emerge from both chambers and go to the White House for the President's signature, hopefully -- according to a Senate Finance Committee aide -- by Aug. 1.
The argument over taxes centers on inflation. The White House claims that taxpayers --tive years of tax cuts -- Would be impelled to work harder and save more money than they do now.
To cut taxes for only one year -- even 10 percent across the board -- Reagan officials stress, would not do the trick, because people would be uncertain about what was coming down the road. They would not make the same commitment to savings and investment as they would with the assurance that the ground rules would not be changed for three years.
A battery of respected experts, ranging from Walter W. Heller to Arthur F. Burns and Paul A. Volcker, warn that millions of Americans might defy White House expectations and simply spend most of their tax savings.
If so, the critics contend, the inflation-ridden US economy would be engulfe d by a fresh wave of inflationary consumer, or "demand," buying.