Reagan tax cuts are 'too big,' says former Nixon economist
A lot of experts -- Democrats and Republicans -- are trying to help President Reagan salvage his economic program, for the good of the country if not for the administration itself.
But their recommendations center on the urgent need for tax increases, from which Mr. Reagan continues to back away.
His latest word on the subject, delivered en route to a vacation in California, was a ''guarantee'' that there would be no tax boosts in 1982.
''If the (budget) deficit continues to grow,'' the President told reporters on Air Force One, ''it will not be because your tax cut was too big, but because spending cuts were too small.''
This reasoning is contradicted by a wide range of economists and advisers, who wish Reagan would stop listening to the more extreme supply-side advocates, such as Rep. Jack F. Kemp (R) of New York, economist Arthur Laffer, and a few officials in his own administration.
These supply-siders hold that large tax cuts, embodied in the three-year Reagan tax-reduction program, will generate economic growth sufficient to replace tax revenues lost through the tax cuts.
''This,'' says Herbert Stein, ''is now commonly recognized as very doubtful.''
Mr. Stein, who spoke with reporters at breakfast Dec. 30, is a nationally known conservative economist who once served as President Nixon's chief economic adviser.
It was a mistake, says Stein, for the Reagan administration to make the tax cuts ''too big,'' leading to budget deficits threatening to tower above $100 billion yearly.
Stein, who is a member of a board of outside experts advising Reagan, finds ''substantial risks'' in running budget deficits in excess of $100 billion, including upward pressure on inflation and interest rates.
If the President does not agree to raise taxes, the economist says, Reagan ''will have to propose really Draconian cuts in the nondefense budget.''
A test of the President's intentions will come early in 1982 when he sends to Congress his proposed budget for fiscal 1983. Current estimates of the deficit for that year run well above $100 billion, unless the White House raises taxes or makes substantial further spending cuts.
Deficits of this size, says Stein, would put Reagan -- who came into office vowing to balance the budget -- in the position of ''driving the last nail in the coffin'' of White House efforts to balance the federal budget.
Many experts believe the President should postpone, or reduce from 10 percent to 5 percent, the final slice of income tax cuts, now due to take effect July 1, 1983. This would add at least $7 billion and perhaps more to US Treasury revenues.
Reagan rules this out, insisting that the entire three-year, across-the-board 25 percent income tax cut will go into effect. Actually, because each year's cut is applied to a narrower tax base, the total reduction, Treasury officials say, comes out to 23 percent.
Given the President's stand, tax-increase advocates fall back on a variety of ''consumption'' taxes -- meaning taxes levied on goods and services that people consume.
Economist Stein says he thinks $50 billion worth of such tax increases could be stitched together. He cites as examples excise taxes on alcohol and tobacco, a higher federal tax on gasoline, a fee on each barrel of imported oil, and either a windfall profits or severance tax on deregulated natural gas.
Even tax increases of this magnitude could leave the fiscal 1983 and 1984 budget deficits in the $100 billion range, according to congressional and private estimates.
Murray Weidenbaum, chief economic adviser to the President, derides these deficit estimates as ''fantastic,'' because they do not take into account ''the very substantial budget cuts we are fashioning.''
Reportedly Reagan is putting together fiscal 1983 cuts of $30 billion or more , with most of the cuts said to fall in social and welfare programs of various kinds. The President still holds out against anything other than very modest reductions in his huge run-up of defense outlays.
According to the White House plan, spending for defense will rise from 5 percent to 6 percent of the nation's gross national product during Reagan's term.