Volcker Backs ‘Modest’ Tax Hikes : Says Gas, Liquor, Tobacco Increases Can Help Cut Deficit

Former Federal Reserve Chairman Paul A. Volcker on Wednesday recommended “modest” tax increases on gasoline, liquor and tobacco to help narrow the federal deficit by $30 billion to $40 billion a year.

He spoke as Democrats stepped up the pressure on incoming President George Bush to outline his own budget priorities before entering negotiations with Congress.

Volcker, echoing the warnings two weeks ago of current Fed Chairman Alan Greenspan, told the bipartisan National Economic Commission that deficit reduction is necessary to avoid undercutting “the foundations of our leadership politically as well as economically in the world.”

Belt-Tightening Ahead

Volcker, who still commands respect in Washington and on Wall Street because of his success during the early 1980s in curbing inflation, said the nation faces a period of belt-tightening during the next several years in which “we’ve got to pay a little bit for the binge in consumption we’ve had for the last five or six years. . . . I’d much rather do it by an orderly change in budgetary policy,” Volcker said, “than do it by financial pressures, recession, and all that goes with that.”

But other comments Wednesday demonstrated once again the political hazards that stand in the way of any agreement between the Democrats who control Congress and the new Republican Administration on an acceptable budget-tightening package.

The commission, established by Congress last year to examine the budget problem, is holding a series of hearings on deficit-cutting alternatives before issuing its own recommendations next spring.

House Speaker Jim Wright (D-Tex.), reflecting the sentiment of other congressional Democrats, told the advisory group that Bush should detail how he would fulfill his campaign promise to cut the deficit without increasing taxes. He said Bush should present Congress with an “honest and responsible” spending blueprint of his own rather than hiding behind the final budget proposal that President Reagan will submit a couple of weeks before leaving office on Jan. 20, Wright said.

Meanwhile, Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) told reporters that Bush should spell out his stands on major issues--such as Medicare, defense and taxes--before expecting congressional leaders to start negotiating any budget deal.

“This is a test of his leadership,” said Bentsen, who was the Democratic vice presidential candidate. “It would be a cop-out otherwise.”

Room to Negotiate

Bush has promised to name his team of budget negotiators on the same day he is sworn in as President, but so far he has avoided saying whether he will submit his own recommendations on how to cut next year’s deficit by about $35 billion or attempt to enter such talks without publicly stating his own positions.

Richard Darman, Bush’s new budget chief, has suggested that the President-elect should not submit his own plan to Congress so that he will not have to reveal where cuts would be necessary to meet the spending limits of his “flexible freeze” campaign slogan. Instead, Darman has argued, Bush should allow himself more room during negotiations to compromise from the hard-line positions that Reagan is expected to stake out in his final budget.

Each side is maneuvering for advantage in the early stages of what promises to be a long, crucial struggle over the next year to establish federal budget priorities that may well set the goals of Bush’s four-year term.

Lawmakers and the White House both want to avoid automatic cuts demanded by the Gramm-Rudman budget balancing law if there is no agreement on a plan to reduce the deficit to $110 billion. But without changes in current spending and tax policies, the deficit is expected to be about $145 billion for the fiscal year that begins next October.

Despite Bush’s attempts to avoid being pinned down, key Republican leaders on Capitol Hill also called on him to submit at least a budgetary outline before expecting Congress to take any action.

Reassurances From Dole

“I think we should wait and see what the President-elect’s plans are,” said Senate GOP leader Bob Dole of Kansas, who suggested that Bush should offer some “revisions” to President Reagan’s proposed 1990 budget as early as possible.

Dole also sought to reassure members of the economic advisory commission that Bush will soon name two individuals to the 12-member commission to bring it to its full size. “He does see a great deal of merit in this commission,” Dole said.

Most members of the congressionally sponsored commission are hoping that Bush will signal his willingness to reach a budget compromise by naming panelists who are considered pragmatists and are not adamantly opposed to all types of tax increases.

Times staff writers William J. Eaton and Sara Fritz in Washington contributed to this story.