Reagan may bat away Mondale's tax hornets, but what comes Nov. 7?
Mr. Reagan, seven weeks from probable reelection, reminds me of someone approaching a beach who is suddenly assaulted by hornets. Does he stop and try to get rid of the hornets, or does he run as fast as he can and get his head under water? The water is the election on Nov. 6. The hornets are the possible harm Walter Mondale's deficit-and-tax talk could do to the President before Nov. 6.
At this point the evident winner if the election were held today, the President must feel he can make it into the water without dealing with those nasty hornets. And he probably can.
Certainly Mr. Reagan's political philosophy is well known to the voters by now. And his consistency is appealing. One knows he is not going to do more than compromise around the edges about the two or three things that mean the most to him - an adequate defense, lower taxes, and a generally free-market approach to the nation's problems. Moreover, as Mr. Mondale is probably going to find out, going into detail about any plans is not best done during an election campaign.
All this said, there is a problem lurking out there. It is not that the economy is going to collapse the week after the election. Growth is slowing, as last week's economic figures abundantly illustrate. Industrial production in August was up only 0.2 percent; retail sales were off 0.8 percent, with the July decline revised to 2 percent, instead of the 0.9 first reported. But few economists see a danger of even a small recession until late 1985.
The problem is that the deficit does have to be dealt with. Most Americans apparently think there is still some time to figure out a solution. What they may not appreciate is that foreign investors have been attracted by the high United States interest rates, and it is the addition of foreign funds to the domestic savings pool that has made it possible to finance the deficit so far without injuring the economy.
Part of Mr. Mondale's approach to the deficit would be a surtax on the highest incomes. Since even that method does not do enough, he would also increase taxes modestly on families earning more than $25,000 a year. The incentives to savings and investment, which were probably the most important factor in the Reagan tax cuts, would thus be lessened. Mr. Mondale would spend less on defense than Mr. Reagan, but not a lot less. He would spend relatively more on income redistribution programs than Mr. Reagan wants to spend, but no one knows until the President gets more specific.
Where the greatest difference probably lies is in some kind of value-added or national sales tax. (These two are not identical, but in their effect on the consumer they are similar - they tend to be regressive.) A value-added tax (VAT) is one of the few taxes this country has not yet tried, and it is very likely an idea that the Reagan administration will float if it is reelected. The fact is that such a tax does not have to be regressive, since the personal income tax brackets and exemptions can be structured in such a way as to neutralize the effect of a VAT on those with smaller incomes.
The advantage of a VAT is that it is one of the few ways to capture some tax on unreported income. If even 10 percent of US income escapes taxation (and some estimates are higher than that), a tax that gets at that underground income could go a large part of the way toward ending the deficit.
Explaining a new tax, and one that on the surface sounds regressive, is, however, not the stuff of successful campaigning. So Mr. Reagan will probably let those hornets buzz about his face until he reaches the cool water - that is, Nov. 6. For those of us who would like to get on with the solution, it's too bad we have to wait until Nov. 7.
