The call for a tax cut is growing in Congress
With unemployment rising and productivity falling as the United States edges deeper into recession, support is broadening in Congress for a tax cut later this year.
But analysts here caution that the legislative tax relief is not likely to come as some tax refund in the mail. Rather, it could be a reduction in social security taxes or a cut in income tax withholding, as Congress offset to some degree "bracket creep" -- the tendency of wage increases prompted by inflation to shove taxpayers into higher tax brackets, thereby increasing their real tax burden. Congress is also expected to give business a tax break in an attempt to stimulate investment in more modern plant and equipment and thereby promote increased productivity. This would indicate the new congressional interest in what is termed "supply-side economics."
"We now expect a $30 billion tax cut later this year," says Albert T. Sommers , chief economist of the Conference Board in New York.
The cut, which Mr. Sommers maintains is growing more likely "day by day," is expected to be around $20 billion for individuals and $10 billion for business.
Mr. Sommer's analysis is hardly unique. A recent survey of economists throughout the US by the conservative Washington-based Heritage Foundation found that economists by an almost 2-to-1 margin (43 to 26) felt that an "investment directed" tax cut was more important now than a balanced budget.
The Carter administration, for its part, has publicly insisted that it will not favor a tax cut without first ensuring that the fiscal year 1981 budget is "in balance."
But prospects for a balanced budget -- which would be the first in 12 years -- look increasingly dim, given shrinking revenues and higher spending stemming from unemployment.
Does that mean, then, that the administration will be absolutely opposed to a tax cut later this year, despite its commitment to a balanced budget?
Not at all, contends Joseph A. Pechman, an economist with the Brookings Institution. The Carter position, he says, will "depend entirely on how deep the recession will be. Right now it looks as though it may be deeper than expected. But it may also be brief."
According to sources with congressional tax-writing committees, the growing impetus for a tax cut is coming from a number of factors:
* The presidential election. In almost a virtual flip-flop of past elections , Republican candidates are now out front in calling for tax relief. Assuming that inflation remains in the 10 percent or so range later this year and unemployment jumps substantially, calls for tax reduction are expected to be enormously powerful among voters.
* The fact that the administration, although formally linking an eventual cut with a balanced budget, has itself now raised the issue of a reduction. Earlier this year, by contrast, administration officials were totally discouraging talk of tax cuts.
* New figures released here recently by the Census Bureau showing that the less affluent 40 percent share of the American people -- with incomes below $15, 000 a year -- are continuing to lose ground economically to the "top 60 percent" of the public. Tax relief for this group (which traditionally tends to vote Democratic) is considered essential by many more-liberal lawmakers.
* A growing list of tax relief proposals on Capitol hill.
To date, more than 2,000 tax relief bills have been introduced by lawmakers in the 96th Congress. They range from indexing proposals (to adjust taxpayer brackets annually to offset inflation) and faster depreciation allowances for industry to special aid for small business or other segments of the economy.
So far as a business cut, accelerated depreciation allowances have gained the support of more than 300 members of the House, including many of its most liberal members.
Slashing new social security tax increases expected to take effect in 1981 remains far more controversial, however.