Tax Hike Inevitable, 2 Experts Say : Economists Want Candidates to Admit Problem to Voters

Two prominent economists predicted Sunday that the next President will have no choice but to raise taxes, and they contended that Vice President George Bush and Massachusetts Gov. Michael S. Dukakis should concede this now, instead of after the election.

Anything less by Bush, the Republican presidential nominee, and Dukakis, the Democrat, will be a “disservice” to voters and will make the debate over the nation’s economic future in this election year “unrealistic,” said one of the economists, David A. Stockman, former Reagan Administration budget director.

Advisers Disagree

However, economic advisers to Bush and Dukakis disagreed and defended their refusal to discuss the possibility of higher taxes.

Joining Stockman in warning of an inevitable tax increase was John Paulus of Morgan Stanley, a New York investment banking house, who said the persistence of large trade and budget deficits and clear signs that inflation is growing indicate that some kind of tax increases will be necessary, perhaps as early as next year.

“We need a steady reduction in the nation’s ($150-billion annual budget) deficit, probably through some tax increases, preferably through a consumption tax increase,” he said. “I think we’ve cut non-defense . . . spending pretty deeply in the last two (presidential) terms and I rather doubt that there’s much more we can take out of the category of expenditures.”

Stockman, who is now an economist for the Blackstone Group, said that the two candidates’ refusal to consider new taxes “is totally unrealistic and a disservice” to voters who are being led to believe that the deficit is not a serious problem.

“The first thing the next President will have to do is level with the American public and tell them that we have cut domestic spending about as far any kind of political consensus will permit . . . and that there is no way to (control the deficit) without a significant tax increase,” he said.

Stockman, who appeared with Paulus on CBS-TV’s “Face the Nation,” added that the two candidates’ opposition to cutting spending on so-called entitlement programs such as Social Security and veterans benefits makes it even more inevitable that taxes will have to be increased.

“The math is overwhelming,” he said. “There is literally nothing significant left in the budget . . . that could be cut in any realistic way that would make more than a billion dollars’ worth of difference.

“The candidates have implicitly pledged themselves to taxes. They simply need to acknowledge it publicly, I think,” Stockman said.

But Sen. Paul S. Sarbanes (D-Md.), chairman of the Joint Economic Committee and an adviser to Dukakis, cited a “reliable study” by the Internal Revenue Service suggesting that the agency loses more than $100 billion a year in failing to cut down on delinquent taxes.

Echoing one of Dukakis’ standard themes, he said that a more vigilant enforcement of the nation’s tax laws, coupled with “restraint” in federal spending, could save billions of dollars and gradually reduce the deficit, without the need for a tax increase.

Dr. Michael Boskin, a Stanford University economist who is advising Bush, said that the budget deficit is shrinking, noting that it was 6% of the gross national product a few years ago, but is now down to 3.4%. He predicted that the deficit will continue to ease downward and will soon be down to the lower levels of the 1970s.

“George Bush won’t raise taxes,” he said, during an appearance on the CBS broadcast with Sarbanes. Boskin held that the nation cannot rely purely on continued economic growth to cut the deficit, and said it must encourage further reductions in federal spending.