A bipartisan House anti-inflation task force urged yesterday that Congress shun a tax cut next year despite the recession, and warned that if the lawmakers want to boost defense spending they should raise taxes to pay for it.
The recommendations, among 37 the panel drafted on how to fight inflation, gave a boost to President Carter's "steady-as-you-go" economic policy, which calls for avoiding a big tax cut unless the recession becomes much deeper.
At the same time, the document challenged Senate conservatives, who are demanding that the administration agree to hefty increases in defense spending in exchange for Senate approval of the strategic arms limitation treaty.
Rep. Paul Simon (D-Ill), who headed toe 10-member panel that included House majority leader Jim Wright (D-Tex.), said he hoped the report would serve as "the signal to the White House that Congress is ready to work with them."
On the defense issue, the panel warned that if the U.S. continues to boost its military outlays, it either must raise taxes or accept higher inflation or unemployment. It called on other nations to shoulder more of the burden.
"We are not suggesting that the nation's economy cannot stand the present - or higher - defense expenditures," the document said. "But we do suggest that if that is the choice, then we must be aware that we must have higher taxes...."
The panel's report was considered likely to have substantial impact in the House. The work of the special task force, a subcommittee of the House Budget Committee, has been widely watched on the Hill.
Meanwhile, Carter reiterated yesterday he still wants to "maintain a stable course" on economic policy and not rush into a tax cut or other form of fiscal stimulus, despite prospects of sharply rising unemployment. The president told a White House audience that "now is no time to change policy." Carter spoke at a swearing-in ceremony for Treasure Secretary G. William Miller and Federal Reserve Board Chairman Paul A. Volcker.
The thrust of the report by the House task force was that the U.S. must enter a prolonged period of economic belt-tightening if it is to slow inflation significantly, with the only real choice in how to spread the sacrifice.
Along with the recommendation to shun a tax cut, the panel also warned the Federal Reserve Board against easing money and credit policies to accommodate "loose" budget and tax policy, implying it favors relatively tight money.
At the same time, however, the group's majority said the recession will prevent Carter from balancing the budget next year, as the president has promised, and urged the government to postpone that goal until fiscal 1982.
The major dissent from that view came from conservative Rep. James R. .... Reggie (D-Okla.), who argued the goal was still attainable. However, Jones conceded sharper spending cuts would be needed if the deficit were to be wiped out.
The warning against enacting a tax cut was couched in unusually strong language. The report said that even if unemployment rises sharply, "the economy will be better served by targeted, specific" job programs."
Simon argued that that admonition should stand even if the jobless rate tops 8.2 percent, as a new internal administration forecast predicts. He said Carter can hold the line veto" a tax-cut bill.
The recommendations involving tax and defense spending policies were by far the most sweeping proposals in the report. The panel also urged beefing up the wage-price program, short of controls, and enacting standby job programs.
The rest of the proposals primarily were narrower measures mentioned often in previous anti-inflation documents. The group urged, for example, a strengthening of U.S. export efforts, changes in trucking regulations and increased research.
Although the panel warned against cutting taxes to counter the recession, it urged that when Congress gets ready to trim taxes again it look first at tax measures to spur new business investment, such as faster depreciation.
It also endorsed, with some reservations, the notion of cutting Social Security payroll taxes as a substitute for a general income-tax cut. However, Simon disputed some contentions that the move would not be inflationary. CAPTION: Picture 1, Paul Volcker, President Carter and G. William Miller after swearing in ceremony at White House yesterday.By Frank Johnson - The Washington Post; Picture 2, MICHELE SINDONA...faces charges; Picture 3, Rep. Paul Simon of the House task force warns against tax cut yesterday. AP