Top Reagan Aides Reject Prediction of Tax Increase
Two top officials of the Reagan Administration, during televised interviews Sunday, rejected suggestions that President Reagan might not fight a post-election boost in income taxes once he has signed the tax revision bill that cleared the 99th Congress on Saturday.
But two economists who headed the Council of Economic Advisers under Republican presidents maintained that economic pressures will force a tax boost because the new law will not raise enough revenue to deal with the nation’s swollen deficit.
“The answer is no,” said Treasury Secretary James A. Baker III when the idea of a tax increase by the Congress to be elected in November was broached during an interview on ABC-TV’s “This Week with David Brinkley.” “At least for the balance of Ronald Reagan’s presidency, you’re not going to see that happen. . . . It’s just not going to happen.”
White House Chief of Staff Donald T. Regan, who developed the Administration’s original tax revision plan when he preceded Baker at the Treasury, was at least as vehement when he was asked on CBS News’ “Face the Nation” how vigorously the White House will fight expected attempts to change the law, raise its newly lowered rates or add new taxes.
“President Reagan has given his word that he’s not going to permit these rates to be raised,” Regan said.
Baker and his predecessor also agreed on the merits of the sweeping tax overhaul, predicting that the simplification and reduction of tax rates makes for fairness and will be good for the economy.
On this score, Baker took exception to critics who contend that the sweeping tax cuts that Congress passed in 1981 at Reagan’s bidding are the root cause of record deficits that now exceed $200 billion yearly. He contended that “if you give Congress the money in the form of tax increases, they are going to spend it.”
In parallel terms, Regan said: “There shouldn’t be any raising of rates. We’ll get more revenue from this, and that new revenue should not be spent. It should be used to cut down on the deficit.”
Murray L. Weidenbaum, chairman of the Council of Economic Advisers early in the Reagan Administration, appearing on the ABC program, called the tax bill a “revenue loser” and predicted: “This new tax code won’t be here five, 10 years from now. There’ll be another tax reform package.” He argued that the bill’s net increases in business taxes, by reducing incentives, will inhibit creation of new jobs, weaken the economy and bring a bigger budget deficit by reducing net tax revenue.
“It may be good politics but I think it’s bad economics,” Weidenbaum said.
Alan Greenspan, economic advisers chairman under President Gerald R. Ford who was interviewed with Weidenbaum, agreed that a probable loss of revenue during the first five years the new code is in force could lead to some kind of tax increase because Administration forecasts that the bill will be “revenue neutral” are actually “unrealistically high” by “about $10 billion to $15 billion a year.”
Greenspan said he agreed that Weidenbaum’s catalogue of “short-term effects” might result from the revised code, which applies lower, more uniform rates and is designed to close loopholes and thereby ensure collection of taxes from individuals and corporations with taxable incomes. But Greenspan argued that the bill will bring benefits over the long term--about five to seven years--by discouraging less productive, tax-subsidized investments and will thereby “improve the allocation of capital and productivity.”