Room for big tax cut; Budget sprints to Senate
The version of the 1981 US budget that was rushed helter-skelter through the lameduck Congress Nov. 20 is carrying with it provision for a big Reagan tax cut next year.
For the layman, it is all pretty hard to understand. But for Congress- watchers, it is taking on color and form like a picture just ejected from a self-developing camera.
The 1981 "fiscal year" has already begun. It started last October and ends next September. Congress has long since missed the theoretical self-imposed deadline by which it was supposed to have completed its annual budget work.
The current burst of activity is due to (a) President-elect Ronald Reagan's coming to town and urging it on (with special reference to his proposed tax cuts); and (b) the desire of Congress to get out of Washington by Dec. 5.
On the next-to-last fiscal lap, as approved by the House and Senate, the numbers add up this way for fiscal year 1981: Federal budget About $632.4 billion Federal deficit About $27.4 billion 'Reagan tax cut' $35-40 billion
The reasoning behind the big prospective deficit is explained in this way: It anticipates next year's "Reagan tax cut," which the new Congress is supposed to work out with the new President. In addition, although federal expenditures seem bigger than before, that is due in part to inflation. When it comes to overall spending in real-dollar terms, say sponsors (discounting inflation on federal income), there is a 1.4 percent reduction in overall real-dollar terms. At least that is what the budget's sponsors say.
Laymen can't avoid some suspicions about the budget. Budgetmakers postponed formulation of the final figures until after the election with the idea, it is alleged, of making it easier for incumbents to face voters. As it is, the projected fiscal 1981 deficit is far less than the actual 1980 deficit of $59 billion. As recently as last summer, however, some expected the 1980 version to produce a modest surplus.
What begins to look like the final form of the budget fell into place Nov. 19 in a two-hour session of the conferees from the Senate and House, who compromised on differences in the two budget versions. Both the House and Senate speedily passed the budget Nov. 20. Among Republicans, who will take over the Senate next year as well as the White House, some argued that the outgoing Congress should not adopt hard and fast figures for the budget but should leave it to the new administration.
The House version of the budget provided for a tax cut of around $30 billion to take effect July 1. The Senate proposed a higher sum.
Beyond the technical budget debate is deep disagreement among economists as to whether a tax cut is wise amid current inflation.
The chief economic innovation candidate Reagan brought to the election was support for the so-called Kemp-Roth plan for a 10 percent, across-the-board income tax cut each year for three years, along with tax cuts for corporations. Stimulative tax cuts accompanied by reduced federal expenditures (except on national defense) were the formula for economic recovery.
Tax cuts have stimulated the American economy in the past, notably under President Kennedy, but the novelty now is that the nation is just coming out of a recession, accompanied by 10 percent inflation. Economists think the United States is making a slow, uncertain recovery. Some US trading partners also have recession accompanied by inflation.
Debate on the forthcoming so-called "Reagan tax cut" formula may dominate America's economic discussion in the new administration.