Share this story
Close X
Switch to Desktop Site

The great tax bill fight

The feature that intrigues me most about the great tax bill issue in Washington these days is that the bill will, if passed into law, repair President Reagan's reputation as a budget balancer without damage to the interests of his original constituents.

It also provides another example of Mr. Reagan's remarkable loyalty to those who gave him their enthusiastic support from the early days of his political career when the average professional politician found it difficult to take seriously the idea of a Hollywood actor getting to the White House.

About these ads

The bill as written is a broad collection of ways and means of raising revenues without falling back on personal graduated income taxes.

A sales tax is the opposite of a graduated tax on income. A sales tax raises revenue from anyone using a particular commodity or service. A tax on tobacco falls on tobacco users regardless of their economic condition. But a graduated income tax falls on that particular slice of the community enjoying a specific level of income. The graduated income tax is a device of the social reformer. The purpose of the graduated income tax may be partly to raise revenue, but it is also used deliberately to redistribute wealth from the affluent to the less affluent.

Sales taxes have no redistributive purpose of function or effect. They fall on anyone according to individual taste. Sometimes they are used for such moral reformist purposes as cutting down on alcohol or nicotine use. Pre-World War I Germany deliberately raised taxes on spirits while subsidizing beer production. The purpose was to wean the German people away from heavy alcohol fluids to lighter beer - it worked.

The Russians might have done well to copy the German's tax example in this respect. The Soviet economy today suffers from widespread alcoholism floated on relatively cheap vodka.

But a sales tax does not drain off accumulated wealth and therefore does not deplete pools of private investment capital. The strongest single argument behind the original Reagan tax cutting plan was that the graduated income tax was depriving American industry of investment capital by depleting the wellsprings of such capital.

Mr. Reagan has fallen back so far as closing tax loopholes on business profits. This will drain off some investment capital. But his package respects private pools of wealth which were being drained by graduated personal income taxes and inheritance taxes. The reservoirs and pools should be filling up now.

And who can be sure that this was not a desirable and perhaps even essential change in the American system? There is no proof yet that Reaganomics would not work if it be given sufficent time and in a fair context.

About these ads

But its chance of working has certainly been weakened by the prospect of enormous unbalanced budgets. If Mr. Reagan had been able to cut both taxes and social services in measured balance and ended up with a balanced budget, it is possible that the American economy would be enjoying the beginnings of a sturdy boom right now. But the possibility of that result has been hobbled by the prospective deficit which in turn has helped to keep interest rates high.

That ''third man'' candidate back during the 1980 campaign named John Anderson (remember him?) was correct in what he said. It is impossible to balance the budget while raising military spending on top of tax cuts. Mr. Reagan could have had his tax and social service cuts without getting into a shocking budget imbalance had his policies called for less rather than much more military spending.

But he was as determined to raise military spending as he was to cut taxes. And that led into the prospect of the country's biggest ever budget deficit. And that has led into the desirability of turning to some other form of revenue. It would not have been a good idea for Mr. Reagan who promised to balance the budget to lead his party into the November elections this year with a record of being the most spendthrift administration in United States history.

So we come to the bill now working its difficult way through the congressional maze. It is a hodgepodge bill. It picks up new money by a score of devices. But not by going back to the graduated income tax. Mr. Reagan is consistent and he is loyal to the belief that the way to regain a prosperous economy is to staunch the drain on investment income by cutting back on social services and on the device, the graduated income tax, which funded those services.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.