Senators Told House Tax Plan Would Hurt

The tax-overhaul plan passed by the House would hurt the economy by requiring corporations to pay for a big tax cut for individuals, three economists told the Senate Finance Committee today.

They called for smaller individual tax cuts and agreed that reducing the federal budget deficit is considerably more important than writing a new tax law.

“If approved as it stands,” said Roger E. Brinner, chief economist of Data Resources Inc., “this bill would enhance the fairness of the tax code” but would produce “a significant loss in the nation’s long-run growth prospects.”

Either the House bill or President Reagan’s original proposal, “if enacted in one fell swoop, could have a severely depressing effect on the economy” in the short run, said Lawrence Chimerine, chairman of Chase Econometrics. In four or five years, he added, the economy should return to where it would be if there were no major tax changes.

Reverse Prediction

George R. Schink, vice president of Wharton Econometric Forecasting Associates, predicted the reverse: slightly higher economic growth over the next five years but lower growth later.

“Cutting taxes for consumers and raising taxes on business leads to a short-term increase in consumer spending and output, and these short-term gains to the consumer come at the expense of investment in productive capital,” Schink said.

Brinner predicted that the bill would increase the cost of U.S. manufactured goods by 5% or 6%. Schink said it would raise housing costs significantly. Chimerine said that while it would slightly increase the number of jobs, productivity would drop and it would require more members of a family to work to maintain a standard of living.

But Sen. George J. Mitchell (D-Me.) reminded the committee that in 1981, Chase Econometrics had predicted that enactment of Reagan’s tax cut would slash the federal deficit and that Americans would save as much as 56% of the reduction. Neither prediction was close.

“Our analysis was as accurate as the Administration’s,” Chimerine shot back.

“That’s not saying much,” Mitchell replied.