New business group weighs in with deficit-cutting plan
Business groups always seem to call for reductions in the federal deficit. Now, executives have formed a new coalition to take a swipe at the evils of government red ink.
On Tuesday, 27 national trade associations, led by former Commerce Secretary Peter Peterson, announced the formation of the Bipartisan Budget Coalition. The group will lobby Congress for a massive reduction in the deficit.
To put heat on Congress to adopt its three-part deficit reduction plan, coalition members, including the American Bankers Association, the US League of Savings Institutions, and the National Association of Realtors, plan to inundate members of Congress with post cards on the deficit issue.
''We are not for or against any one or any party. We are against deficits,'' said Mr. Peterson, who served in the Nixon administration. The group proposes reducing cost-of-living adjustments in social programs, slowing the rate of growth in defense spending, and additional taxes tied to spending cuts. Its interim goal is a budget deficit of $90 billion in three years. By contrast, the Congressional Budget Office (CBO) expects a deficit of $172 billion in fiscal 1984, which ends Sept. 30.
The politically potent trade associations call for presidential and congressional candidates to spell out their deficit-cutting plans. ''We would include the President in our respectful request,'' Peterson said.
While antideficit fervor among business leaders remains strong, business groups generally oppose the deficit reduction plan outlined Monday by Democratic presidential hopeful Walter F. Mondale. His advisers claim the proposal would chop the deficit by two-thirds by fiscal 1989. But, among other things, business leaders do not like Mr. Mondale's recommendation for a 15 percent minimum tax on business income.
Executives claim that higher taxes on business would slow or kill the current boom in business investment in new plants and equipment, thus slowing US economic growth and eroding US competitiveness in the world economy.
But corporate leaders admit that business will be a tempting target if taxes are raised next year. Two reasons are that corporate tax rates have declined, as has the share of federal revenue coming from corporate taxes.
Still, most business spokesmen are decidedly cool to Mondale's plan.
''We don't think it is very viable. There is too much in the way of tax increases and not enough spending cuts,'' argues Paul Huard, vice-president for taxation and fiscal policy at the National Association of Manufacturers. He says the association does not take official positions on presidential candidates or their policies.
Executives at the US Chamber of Commerce also cited major reservations about Mondale's plan, although the organization itself takes no formal position on it. While the chamber supports deficit reductions, it favors additional spending cuts, including futher cuts in social programs. By boosting taxes on higher-income individuals and corporations, Mondale's plan ''hits at those places and people that generate most of the savings and generate most of the investment,'' notes Ronald Utt, deputy chief economist. Mondale's proposal would ''get us back to 1980,'' when the US suffered from a serious shortage of investment in new plant and equipment, he says.
Several business leaders commended Mondale for disclosing his deficit-cutting plans. They noted that President Reagan had provided less detail about how he will trim the gap between government spending and revenue. ''You would like to have full disclosure,'' says Jack Carlson, executive officer of the National Association of Realtors. ''But bad proposals are still bad proposals.''
Mr. Carlson, an economist, argues that Mondale's economists have overstated the interest-expense savings his plan will produce and also overstated the additional growth - and tax revenue - that will flow from lower interest rates. Mondale's plan put savings from lower interest rates by 1989 at $51 billion and estimated revenue from faster growth at $17 billion. ''Some 78 percent of his progam is tax increases,'' Carlson alleges. ''That would adversely affect investment.''
US companies continue to invest at a rapid clip, although their spending plans are a bit less robust than earlier estimated, the Commerce Department reported Tuesday. Firms plan to spend 14.3 percent more in 1984 on factories and equipment than they did in 1983. That is down slighlty from the 14.8 percent hike projected in June. If the new survey data are correct, capital spending for the year will total $307.6 billion.
If companies spend according to plan, the third quarter will set a record for capital spending, the government said. Very strong business capital investment is a major pillar of the recovery. Business spending, which in a recovery typically rebounds later than consumer spending, will ''continue to boom'' next year, says Chamber of Commerce economist Utt.
To preserve a favorable investment climate, many executives say that if new taxes are needed, they favor a consumption-based tax rather than the higher personal and corporate taxes contained in the Mondale plan. A national sales tax is one example of a consumption tax.
Taxes on business have dropped sharply in recent years, with the 1981 tax act playing a major role. Corporate taxes as a share of federal revenue have fallen from 12.5 percent in 1980 to 6.2 percent in '83. And the effective corporate tax rate has dropped from 40.1 percent in '80 to 26.7 percent in '83, according to CBO figures.
Corporate America's share of the federal tax bill* 1960 .2% 1965 21.8% 1970 17.0% 1975 14.6% 1980 12.5% 1981 10.2% 1982 8.0% 1983 6.2% * Corporate income taxes as a percent of total federal revenues, by fiscal year.
Tax bite on corporate profits*
Average for 1970-79 period 39.3% 1980 40.1% 1982 34.6% 1983 26.6% 1984e 26.7% * Corporate tax accruals as a percentage of economic profits, by calendar year. e-Estimate Source: Congressional Budget Office