Reagan Tax Hike Seen by O'Neill : Budget Constraints to Force Him to Act by '87, Speaker Says

Times Staff Writer

House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) predicted Sunday that President Reagan, who has vowed to veto any tax increase, will be forced by growing budget constraints to propose one of his own by 1987.

O'Neill, who is preparing to retire from public life at the end of 1986, said he expects that the impetus for a tax hike will come from budget legislation enacted earlier this month. Known by the names of its major authors, Sens. Phil Gramm (R-Tex.) and Warren B. Rudman (R-N.H.), who were joined in sponsoring the bill by Sen. Ernest F. Hollings (D-S.C.), the measure calls for a balanced budget by 1991.

But the Speaker insisted that the Democrats will not propose a tax increase--even though they think one is needed to cut the federal deficit. Instead, he said, the Democrats will wait for the President to act to avoid deep cuts in defense spending.

'He'll Change His Mind'

"We're going to have a tax bill out there and that tax bill will come from the President of the United States," O'Neill said in a rare television interview on NBC's "Meet the Press." "He's changed his mind so many times on so many issues this year. Do I think he'll change his mind on taxes? I think he'll change his mind on taxes by 1987."

It was unclear whether O'Neill was referring to calendar year 1987 or fiscal 1987, which begins next Oct. 1. Rep. Richard A. Gephardt (D-Mo.) echoed O'Neill's prediction in an interview on Cable News Network, predicting that the President will change his mind by the middle of 1986.

O'Neill claimed a share of the credit for Reagan's decision to visit Capitol Hill to persuade House Republicans to form ranks behind the tax bill, which was kept off the House floor on Dec. 11 because most Republicans joined in a procedural vote against taking it up. After that vote, the Speaker warned that Reagan would have to "deliver the votes" or "Dec. 11 will be remembered as the date Ronald Reagan became a lame duck on the floor of the House."

'He Came Back Strong'

"Well, he came back and he came back strong," O'Neill said, "and if it hadn't been for the words that I said, 'Mr. President, you're a lame ducker,' the bill would have been dead. I think probably history will show that was the most important statement in the entire debate, the day that I urged . . . the President of the United States . . . 'You're either a lame ducker or you're going to show the Republican leadership in the House who is in control of that party.' "

Reagan, who restated his adamant opposition to any tax increase on Saturday, even challenged Congress earlier this year to "make my day" by passing a tax bill that he could veto. Like O'Neill and Gephardt, the defeated Democratic presidential nominee, Walter F. Mondale, predicted in 1984 that Reagan would be forced by circumstances to raise taxes before the end of his second term.

A Way to Save Face

According to Gephardt, the President will likely propose an increase as part of the tax overhaul bill now working its way through Congress. The measure, which passed the House last week, currently provides no increase in revenues.

"I think when he (Reagan) looks at the cuts that will come in defense because of the Gramm-Rudman bill," Gephardt said, "I think the President will come to the negotiating table, be willing to talk about taxes and perhaps the way for him to save face on his pledge that he wouldn't raises taxes is to do it in the context of tax revision, tax reform."

Congress last week approved a 1.5% increase in defense spending for the current fiscal year, an increase that does not even compensate for inflation, and Gephardt said Congress may be forced to trim an additional $40 billion to $60 billion from the defense budget next year to comply with the terms of Gramm-Rudman.

Pressure on Reagan

O'Neill said the authors of Gramm-Rudman apparently intended for the measure to put pressure on Reagan to approve a tax hike.

"As a matter of fact," he said, "there are those who say that Gramm-Rudman got its impetus in the Senate because they feel as though a bill of this nature will ultimately make the President, if he wants a strong defense and if he wants his defense bill, he'll have to come forward with a tax bill."

After the House passed a tax overhaul bill last week, Reagan announced that he would veto it unless it is changed by the Senate to include a $2,000 personal tax exemption and a top tax rate of 35%. The House-passed bill contains a 38% top bracket and retains a $1,500 personal exemption for taxpayers who itemize.

An 'Article of Faith'

Rep. Jack Kemp (R-N.Y.), an outspoken advocate of tax overhaul, said in another interview show on Cable News Network that he views Reagan's veto threat as an "article of faith," if the bill is not changed in the Senate.

But O'Neill predicted that the President, who has made tax reform the "cornerstone" of his legislative program, will sign whatever legislation to overhaul the tax code Congress may pass--even if it does not include the changes proposed by the White House.

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