Washington policymakers slowly lose aversion to talk of tax increases
Increasingly the talk in Washington is on the need to raise taxes and how best to do it, despite President Reagan's pledge to Americans to reduce their overall tax burden.
A ''basic fiscal fact,'' says chief White House economist Martin S. Feldstein , is that ''tax revenues must be increased in the years ahead.''
Without tax boosts, says Dr. Feldstein, the gap between government income and outlays will widen, leading to bigger deficits and a rising national debt. Already 13 cents of every tax dollar goes to interest on the debt, compared with 7 cents a decade ago.
How is it that the President's top economic adviser speaks so confidently of tax increases, when Mr. Reagan vows to veto any bill that repeals either this year's income tax cut or the indexing of tax rates to inflation?
Repeal of these measures, a hot topic of debate in Congress, would wipe out scheduled tax reductions and add billions of dollars to US Treasury revenues.
The answer to the apparent Reagan-Feldstein discrepancy is that there is more than one way to raise taxes. The President rules out any tampering with tax cuts already in place, but he does not reject all tax boosts.
One major tax hike, for example, is in the works with presidential blessing - namely, a higher payroll tax on employers and workers that finances the trust funds of the vast social security system.
Next January, assuming Congress passes the social security rescue package in its present form, the tax on both employers and workers will jump from 6.7 to 7 percent of the first $37,800 of income. Self-employed Americans face an even sharper payroll tax hike. By 1990 the payroll tax will rise to 7.65 percent.
For many Americans, tax savings from President Reagan's three-year income tax cut program are more than offset by higher social security levies.
Other potential tax boosts are still in the discussion stage. The possibility of new energy taxes, says Feldstein, has leaped into focus with the dramatic drop in the price of oil.
Many experts in and out of government believe the time is ripe for President Reagan to clamp a stiff tax on imported oil, perhaps $5 a barrel.
''We need the money,'' says economist Herbert Stein, ''and the economy has already adjusted to the high price of oil.''
Revenue from such a tax, says Mr. Stein, a senior fellow at the American Enterprise Institute (AEI) and a former adviser to President Nixon, could reduce the budget deficit, discourage wasteful use of oil, and promote the development of alternative energy sources.
No one knows how far the world price of oil will fall, as oil producers in and out of the 13-member OPEC cartel jockey for market shares. Few observers believe the new OPEC price of $29 a barrel, down from $34, will hold.
Already the Soviet Union, which sells more than a million barrels of oil daily to Western Europe, has dropped the price of its crude roughly two dollars a barrel below the new OPEC price. Egypt, also a non-cartel member, has done the same.
Feldstein claims that other tax increases are embedded in the fiscal program advanced by President Reagan, namely a standby tax to be triggered in fiscal 1986 if the deficit remains stubbornly high. Leaders of both parties, including Sen. Robert Dole (R) of Kansas, said there was ''no support'' in Congress for the standby tax.
''The overwhelming message that emerges from the Reagan budgets is that we need tax increases, starting in 1984,'' says former presidential adviser Rudolph G. Penner. ''We can't wait until 1986.''
Eventually Feldstein and many other experts would like to see the US tax system revised to encourage savings and discourage consumption, or spending. The ultimate of such a change would be to tax income that is spent, but not income that is saved.
A start was made in this direction in 1981 by allowing tax payers to make tax deductible contributions to Individual Retirement Accounts (IRA). Taxpayers with self-employed income are entitled to two tax-deductible accounts - IRA on wage or salary income and Keogh on self-employed earnings.
Apart from IRA and Keogh, income tax law now basically encourages spending and discourages savings. Interest earned on savings is taxed, while interest paid by consumers on installment and other loans is tax deductible.