Congress should put budget-cutting ahead of tax-cutting and, in any event, should scale down and delay the first 10 percent personal tax cut promised by the Kemp-Roth bill, Arthur F. Burns said yesterday in the initial congressional discussion of President Reagan's proposed economic program.
Burns, a former chairman of the Federal Reserve Board, is presently a senior, if unofficial, adviser to the Reagan administration. "If I were an economic czar" there would be no personal income tax cuts at all this year," he told the Senate Budget Committee. But recognizing Reagan's political commitment to a tax cut, Burns urged the senators to keep it small, and postpone the effective date until at least July 1, or preferably Oct. 1.
He said he understands the importance of Reagan staying with his commitment, to help restore some credibility in government promises. But Burns admitted he would feel "more comfortable" if the three-year tax-cutting plan of the Kemp-Roth bill were stretched out. "We don't have to do it in three years -- it's not a pronouncement from Mount Sinai," he said. "It might take four years."
Asked later in the day to comment on Burns' proposal to delay the effective date of personal tax cuts, Office of Management and Budget Director David Stockman said "I just disagree with him." But Stockman noted that it will take four or five months in any event to get tax legislation passed, and suggested that the major budgetary impact of the Kemp-Roth proposal wouldn't be felt until fiscal 1982.
But while Burns counseled caution on cutting taxes, he also insisted that Congress take bold and innovative steps to cut the growth of the federal budget. He said action must be taken within the next three or four months that will restrain spending in later years.
Specifically, he argued for reduction of spending on "entitlement" programs such as Social Security, and recommended that a balanced budget be required by fiscal 1983 unless authorized by two-thirds of both houses of Congress. He suggested also that spending presently listed as "off-budget" be incorporated in the main budget account. If that were the case, the fiscal 1981 deficit would now have to be listed as $78 billion instead of $55 billion. 1
The Burns testimony was the opening gun in what promises to be a battle between the Reagan "supply-siders" who want to fulfill the president's campaign commitment for deep tax cuts as well as budget reductions, and traditionalists on both sides of the aisle who fear that a hefty tax cut in fiscal 1981 will further increase the budget deficit and raise new inflationary fears.
The new chairman of the Budget Committee, Sen. Pete Domenici (R-N.M.), said that in his view the nation faces "a crisis in self-government" unless "spending and tax cuts . . . occur side by side and [are] linked. . ." Inasmuch as the consensus among Reagan Advisers -- including Stockman -- is that the fiscal 1981 budget can be cut by only $10 billion to $15 billion, the Domenici approach, endorsed by Burns, would severely limit this year's potential tax cut.
Even tax cuts for the business side of the economy should be minimized in fiscal 1981, Burns said, "but large tax cuts for business should be set in motion this year" covering a period of five to seven years ahead, releasing powerful forces to expand investment and improve the nation's productivity.
"But these blessings will have a better chance of being realized if the tax reductions for this calendar year and the next are kept moderate," he added. "We need to be very cautious about adding to the swollen budget deficits that are already in prospect."
Burns contended that excessively generous indexing of Social Security benefits and federal pensions have created "privileged classes" that are better protected against inflation than other groups of citizens. Congress should change the law "one way or another so that the inflation adjustments will no longer be as reckless as they are now," he said.
He noted, in passing, that it was a matter of equity as well as wasteful spending. For example, in contrast to the 14 percent inflation adjustment that federal retirees got in 1980, the beneficiaries of the program for Aid to Families with Dependent Children received an increase of only 3 percent to 4 percent.
"There are all sorts of inequities in our social legislation, and we ought to treat them factually and not demagogically," Burns said.