The hallowed tradition of election-year tax cuts, like steak twice a week and a new car every three years, has fallen victim to inflation.
The economy is caught in a swiftly deepening recession, with unemployment already up to 7 percent. But remarkably, both politics and the political calendar suggest that there will be no bill cutting taxes passed in 1980.
Instead, American taxpayers can look forward to a $55 billion increase in their real tax burdens as part of the effort to bring the 1981 federal budget close to balance in the battle against inflation.
In past years, politicians of every persuasion would have been falling all over themselves to cut taxes. But this election year, the message members of Congress are getting from the home front is still "balance the budget to fight inflation."
Conceiveably, that could change, as the recession gets worse and more and more people lose their jobs or have a friend or another member of their family out of work. The problem is, tax cuts seem to have lost their allure in a world of high inflation -- inflation that the public has come to associate with big federal budget deficits.
So this year, most politicians are likely to choose the course laid out by President Carter; promise a tax cut for 1982, not 1981, after the budget is balanced.
At his town hall meeting in Philadelphia earlier this month, Carter declared, "We have been able to reduce taxes a good bit. We will reduce them more next year, in my judgment, when we get the budget balanced and get the inflation rate and the interest rates down where they ought to be."
After all, it was only two months ago, in a show of anti-inflation fervor, that President Carter and congressional leaders finally committed themselves to balancing the 1981 budget.Neither the president nor Congress is going to turn on a dime, especially with inflation still roaring along, according to both administration officials and Capitol Hill observers. a
As Treasury Secretary G. William Miller put it last week on NBC's Today Show, "It's unlikely that we'll have a tax cut in the near term because we determined we must first have Congress demonstrate a willingness to control government spending before we talk about a tax cut."
That approach is just fine with Congress, which is about to adopt a budget resolution showing a surplus for 1981. However, everyone concedes the surplus will vanish in a puff of smoke as the recession clobbers tax revenues and requires more spending for unemployment benefits and welfare.
With a deficit once again in prospect, Congress may be reluctant to make it worse by cutting taxes. Rep. Al Ullman (D-Ore.), chairman of the House Ways and Means Committee, in which tax legislation must originate, said in an interview that he is flatly opposed to a tax cut bill this year and will support one early in 1981 "only if it's consistent with a balanced budget.
"The issue before this country is inflation," Ullman declared. "A tight fiscal policy is absolutely essential to the anti-inflation effort. . . . It would be a great mistake to have a tax cut bill this year."
Ullman doesn't want a tax cut even though his home state's lumber industry has been devastated by the drop in demand caused by the collapse in home building. He would rather rely on monetary policy to spur the recovery.
"Lower interest rates will bring housing back," he asserted, adding, "If interest rates continue to come down, then that absolutely nullifies any rationale for a tax cut." Besides, Ullman continued, "We still have a lot of this country that doesn't know there's a recession."
Most important, the members of Ullman's committee seem to be feeling little heat from their constituents.
"I don't see any pressure for a tax cut," Rep. William R. Cotter (D-Conn.) reported. "The only pressure I see is in the media. I hear no talk from the man on the street."
The typical voter still thinks that "a tax cut is inflationary as hell," Cotter said. "The average guy would rather cut inflation and give up whatever modest tax cut you could have this year."
Even among Republican legislators who would like to see federal spending slashed to make room for a large tax cut, there is general agreement that there will be no cut passed in 1980 unless President Carter changes his mind and backs one.
At the moment that is just not in the cards, administration sources believe.
One key adviser says Carter is simply more comfortable in his present role as a fiscal conservative than he ever was cutting taxes to stimulate the economy, however much the president accepted the need to do it.
Moreover, if Carter's Republican opponent this fall turns out to be Ronald Reagan, as now looks all but a certainty, the president probably will attack the former California governor for espousing recklessly large tax cuts rather than countering with one of his own.
The cornerstone of Reagan's economic platform is an across-the-board, 30 percent cut in income tax rates over three years. Some economists advising Reagan have tried to get him to water down this proposal, but other advisers have dug in their heels and so far Reagan has refused to modify his stand.
In contrast, Carter's chief domestic policy aide, Stuart E. Eizenstat, cautioned in a speech a few days ago: "Across-the-board tax reductions would lead to higher deficits, would not lessen inflation rates, and in the wrong circumstances might be misinterpreted as a slackening in the fight against inflation."
That will be one of Carter's main arguments against Reagan this fall.
At the moment, whatever the economic prospects, Congress is still intent on balancing the budget. Under terms of the resolution about to go to the House and Senate floors, Congress is supposed to come up with about $5.5 billion worth of new revenue-raising measures -- such as withholding taxes from interest and dividend payments.
The House and Senate tax-writing committees will have to try to find a way to raise that money. Occupied in that fashion, they will hardly be striking out to cut taxes. As one staffer noted, "It's going to be the mechanics of the budget process that drives this thing."
If the first budget resolution says raise taxes, the summer -- with its July and August interruptions for the two party conventions -- will be gone before the second resolution could be adopted to make room for a tax cut. Doing so even in September would require, on the eve of the election, an explicit vote to increase the 1981 deficit significantly.
With inflation likely still to be in the double-digit range by then, most congressional observers do not think such a choice is likely -- barring a huge increase in unemployment that even the more pessimistic forecasters do not predict.
Finally, if the congressional mood should shift, there would be the usual wrangle over which taxes should be cut and by how much. Quickie tax cuts usually have been fairly simple ones, with something for individuals and considerably less for business.
This time, however, there is wide agreement that any tax cut should not be "wasted" in an attempt to increase consumer spending as a way out of the recession. Rather, the cut should be used, one way or another, to help reduce inflation in the future.
Therefore, the next tax cut probably will focus on spurring productivity-increasing investments by business, perhaps with higher investment tax credits or faster tax writeoffs for such investment. Reducing the impact of a large increase in Social Security payroll taxes due Jan. 1, which will add to business costs, is favored by others.
Reaching agreement on a tax cut of this type in the last month or so before an election is probably out of the question, Capitol Hill tax experts believe.
As each week passes, the chances of a tax cut bill in 1980 get dimmer and dimmer.