$14-Billion Rise in Deficit Seen in New Tax Plan

Times Staff Writer

President Reagan’s tax revision package received another setback Wednesday as the Congressional Budget Office estimated that several major provisions of the plan that affect corporations would boost the federal deficit by about $14 billion a year after the plan was fully implemented in 1991.

Reagan’s package is encountering increasing skepticism on Capitol Hill, and House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.)--the tax reform effort’s most important congressional supporter--said the estimates by the nonpartisan CBO “cast further doubts on the balance of the President’s plan.”

Figures ‘Not Definitive’

Cautioning that the preliminary figures “are not definitive,” Rostenkowski warned he would send the proposal back to the White House for rewriting if further study demonstrates that the Administration tax package would fail to raise about the same amount of revenues as current law.


Meanwhile, other members of the tax-writing panel said Administration officials have been unusually active in talking to members of Congress over the last few days because of fears that support for the White House proposal is beginning to erode.

“On the floor, there is deep skepticism whether we’re ever going to get a tax bill, and within the committee there is major concern about whether we can get from here to there,” said one Democratic member of the Ways and Means panel who spoke on condition that he not be identified.

Congressional Doubts

He said White House congressional lobbyist M. B. Oglesby and Assistant Treasury Secretary Ron Pearlman have acknowledged privately that congressional doubts about the package have been much stronger than they expected.


“They are worried that they are losing all the momentum behind the tax reform effort,” he said.

Ever since he proposed last year to undertake a major tax overhaul, Reagan has promised the plan would be presented as “revenue neutral,” meaning the Treasury would neither lose nor gain revenues overall from the tax changes.

The Treasury Department estimated that the White House plan would lose only a relatively trivial amount of money over the next five years.

But shortly after the Administration presented its latest plan last month, several congressional leaders immediately raised questions as to whether the White House had managed to keep the package revenue neutral in later years, when several special provisions designed to raise billions of dollars would be phased out.


The CBO study appears to confirm some of the doubts about the plan’s impact. It prompted House Budget Committee Chairman William H. Gray III (D-Pa.) to warn that “we cannot afford a revenue-losing tax reform which further drives up the deficit and thereby forces unwise and excessive cuts in (federal) programs.”

But a Treasury official, who asked not to be identified, challenged the CBO analysis, pointing out that it does not study the entire White House plan and relies on “several different technical assumptions that we think may not be valid.”

Revenue Estimate Awaited

The official said the Administration would wait for a formal revenue estimate from the congressional Joint Committee on Taxation before deciding whether there is any validity to the criticism that the plan will lose money for the government, already facing future deficits estimated at more than $180 billion annually.


Some Treasury officials, however, have acknowledged privately that the Administration’s plan would not raise enough money from corporations over the long run to balance the average 7% cut in taxes for individuals.

The CBO said that the Treasury’s estimate that total corporate tax payments would rise by about 9% “when fully effective,” appears to be “inconsistent with long-run neutrality, because individual receipts under current law are almost five times greater than corporate receipts.”

The CBO looked at the revenue effects from repealing the investment tax credit, changing business depreciation write-offs, corporate rate reduction and base broadening, and introduction of a business tax deduction of 10% of dividend payments to shareholders.

The CBO study estimated that the provisions would produce a gain of $600 million in revenue in 1991 compared to current law. But after that the corporate tax changes, particularly the new depreciation proposals, would begin losing significant chunks of money for the government, averaging $14 billion a year and about 0.2% of the total gross national product.