Accountant's assessment of Capitol Hill tax trends
This was old-home week for Peter J. Hart, national director of tax policy in Washington for one of the nation's largest accounting firms, Price Waterhouse & Co. Mr. Hart had worked for that firm for a number of years in Boston and he was returning to tell some old friends at the International Business Center of New England what was going on in the US Capitol in regard to taxes.
With a little more than 1 out of 5 dollars to gross national product being channeled through Washington these days, businessmen are vitally interested in changes in tax policy. Mr. Hart is one of that small army of observers or lobbyists who try to keep track of or influence regulation and legislation in the tax field.
Public accounting firms have altogether 12 to 16 people following the tax policy process in Washington full time, Mr. Hart estimates. Any major business association has one or several employees in the tax area. Some major corporations have tax experts in Washington. There are a number of firms that make a business of tracking tax policy for companies which for reasons of size or otherwise do not have their own tax persons in the District of Columbia.
And, of course, there are dozens of journalists at the White House, the Treasury, or Capitol Hill snooping about and reporting on their tax policy findings.
Who does the best job of getting the true tax picture to their customers and readers?
Mr. Hart replies that there are "no magic skills" involved in either business or journalistic tax reporting. "We can do as well as most people," he said.
However, he does concede that journalists "get closer to some of the personalities involved on a consistent basis than we do" and that they may thus have an advantage in reporting the politics of tax policy. Full-time lobbyists -- those spending much time on Capitol Hill trying to influence evolving tax legislation -- may know more about the particulars of likely changes in the tax system.
Accountant tax policy experts, he maintains, have a stronger understanding of the policy issues involved, including technical concerns. Whatever, forecasts made by Mr. Hart prior to the Reagan administration's budget proposals have proved reasonably accurate.
Here are some of his current economic tax policy observations:
* The administration considers the "most critical" element of its economic policy to be one it does not have direct control over -- monetary policy. This is the responsibility of the Federal Reserve System. Reagan policymakers such as Norman Ture, Treasury undersecretary for taxation and economics, want to make sure the Fed does not "monetarize" the budget deficit and thereby maintain a high inflation rate. They would prefer that monetary policy err on the size of being restrictive, rather than looseness.
Moreover, they feel they have some assurance from the semi-independent Fed that it will go along with such monetary toughness.
* The jury is still out on the success of the administration's two-track strategy to tax legislation. President Reagan has urged as a first track a "clean bill" that will embrace the Kemp-Roth proposal for a 10 percent cut per year for three years in personal income taxes and nothing else; plus the accelerated cost recovery system bill that would allow a more rapid writeoff by business of the cost of both new and used property. The second track will cover other tax issues -- such as reducing the income tax "marriage penalty" where both husband and wife work, or introducing new incentives to saving, such as allowing anyone to start a tax-deferred individual retirement account.
Mr. Hart suspects that when the House Ways and Means Committee starts serious hearings on the tax legislation this week that it will make some changes in the Reagan proposals. The Democrats, he notes, have given themselves a 2-to-1 majority in that key tax committee, despite the 3-to-2 Democrat-Republican ratio in the House as a whole. The Democrats want to assure their control of tax legislation. The new chairman of the Ways and Means Committee, Dan Rostenkowski of Illinois, is regarded as a good negotiator of compromises.
* One possible important compromise, Mr. Hart says, could be a reduction in the size of the tax cuts to 5 to 7 percent per year. Further, Congress might require some tie-in between those tax cuts and further budget cuts.
* Some further reduction in capital-gains taxation is practically a "fait accompli." It has wide support in Congress. The capital-gains tax might be lowered from 28 percent to around 20 percent.
* The administration has hoped to have its tax cuts passed by July 1. Mr. Hart expects Congress to take longer. The Ways and Means Committee may divide its time between tax matters and budget cuts, working two days per week on each.
* Attempts to raise government revenues by closing or reducing some of the $ 100 billion or so in tax loopholes, more politely known as "tax expenditures," will likely face opposition from the White House. Mr. Hart held that President Reagan has told his staff, "I am not increasing anybody's taxes on anything."
* Among the second-track tax measures likely to come up, Mr. Hart lists reduction of the marriage penalty; a research and development tax credit; liberalization of individual retirement accounts; exempt some interest earned on savings accounts; reinstitute the exclusion for foreign earned income, perhaps as high as $50,000, and so on.
Any further tax cuts in the second track would make it more difficult to balance the budget. But that may not worry the Reagan administration as much as it indicates, since a tight monetary policy should produce less inflation. Rather, a sizable deficit would enable the President to insist on more budget cuts on the basis of the theory, "what the government doesn't have in revenues, it will be less tempted to spend." It is an old strategy of conservatives aimed at cutting the size of government.