Reagan Tax Plan May Add to Deficit, Feldstein Says

The former chairman of President Reagan’s Council of Economic Advisers said today that the Administration’s tax overhaul plan runs “a substantial risk” of losing money for the Treasury and thus raising the nation’s budget deficit.

“It would be a fiscal disaster if tax reform became a deficit-enlarging tax cut,” Martin S. Feldstein told the House Ways and Means Committee. He said, however, that Reagan’s plan is “revenue neutral at best.”

Feldstein, who returned to Harvard University to teach economics amid friction over Administration fiscal policy, told the tax-writing panel that a revenue increase “is definitely needed to reach the desirable goal” of cutting the deficit to 2% of gross national product by 1988 and reaching a balanced budget “early in the next decade.”

Feldstein said Reagan’s proposed increase in the personal exemption from $1,080 to $2,000 would “cause a huge $40-billion annual revenue loss” while aiding the wealthy more than other groups. He also said it would “discourage work effort.”

Reagan’s proposal to recapture $57 billion in revenue lost under current law through speeded-up depreciation write-offs for business also came in for criticism from Feldstein. He called it a “capricious and counterproductive tax increase.”

“Since this tax was not part of the Treasury’s original proposal, it certainly looks like it was invented to plug a large temporary revenue shortfall and not because of any good tax policy reason,” Feldstein said.