Hours before the administration worked out a budget compromise with Senate Republicans yesterday, two key Cabinet members rejected pressure from Democratic House committees to outline specific tax increases and spending reductions.
In a tense confrontation with Democrats on the House Ways and Means Committee yesterday, Treasury Secretary Donald T. Regan refused to suggest ways to raise new revenues and remained firmly behind the individual and business tax cuts enacted last year.
Regan refused to suggest or support any new revenue raising proposals aside from a collection of proposed tax loophole closings and creation of a corporate minimum tax that had been announced last Februrary.
It later emerged in the budget agreement with Senate Republicans that the administration would accept $95 billion in new taxes over three years, considerably more than it would acknowledge to the House Democrats
At a separate hearing, Budget Director David Stockman also backed off from earlier administration commitments on tax increases.
After listening to Regan's opening statement, Rep. Daniel Rostenkowski (D-Ill.), the chairman, said "We are moving back to the old battleground" and warned that unless there is "real direction that can only be given us by the president, we are going to flounder around."
Regan, however, shot back: "The president gave leadership and your party rejected it." The Treasury secretary gave no indication of the negotiations taking place with Republican members of the Senate Budget Committee.
Not only did Regan stick by the $749 billion tax cut, including the 10 percent individual rate reduction in 1983 that many Democrats want to eliminate or scale back, but also he provided a number of signals on other tax issues suggesting that the effort to raise revenues to close the deficit gap will be very difficult:
Despite earlier indications that the administration might be willing to abandon indexation of the tax system, Regan firmly supported the indexing provision passed last year and scheduled to start in 1985 at a cost of $12.9 billion, growing to $35.8 billion in fiscal 1986.
Rep. James Shannon (D-Mass.) read Regan's earlier testimony, which said: "I am opposed to it indexing . I think it is an indication we are giving into the inflationary fight." Yesterday, Regan said "Congress changed my mind."
Regan said the administration is considering changes in a proposed corporate minimum tax and in efforts to close special tax breaks for multi-year contracts and the life insurance industry. These changes would, in all likelihood, reduce revenue gains. In the case of the mimimum tax, Regan said he would consider allowing companies to use all or part of investment tax credits against the tax, a step that could cut revenues about in half from the $12 billion estimate through 1985.
In a reflection of the harshness of the session, Rep. Fortney H. (Pete) Stark (D-Calif.) chided Regan for changing positions. "You are one of the most highly principled witnesses we have ever had here. Your major principle is flexibility."
In a similar tone, Rep. Charles Rangel (D-N.Y.) told Regan: "Let me say Mr. Secretary, your program is working. It just happens that a lot of people are not working."
Regan, in turn, appeared to have gone to the hearing fully prepared for battle. Facing repeated requests that the president present a revised budget, he countered: "The president is willing to work with Congress, but he wants to see what Congress is willing to do." He compared efforts to work out a settlement with Congress to "negotiating with a mirror."
In the case of corporate tax leasing, Regan said he would support a reform barring companies from buying so many tax breaks that they eliminate federal tax liability. Specifically, he said companies like General Electric should not be able to use tax leasing to get refunds on prior years' taxes. These proposals would not raise significant revenues.
In addition, Regan indicated he might support modification of the basic business tax break enacted last year to prevent any companies from getting what amounts to a negative tax rate, or subsidy, on the profits from new investments. He was not, however, clear on this issue, indicating that such a tax subsidy may be important for the continued survival of the airlines industry.
At a separate and less hostile Budget Committee hearing yesterday, Stockman called for a "major retrenchment on the spending side" to reduce the federal deficits. On taxes, however, Stockman said "we certainly don't want to approach or exceed the range" of tax increases the negotiators discussed.
The agreement on $95 billion over three years is considerably less than the $122 billion President Reagan was reportedly willing to accept in bipartisan negotiations that fell apart last week.
Committee Chairman James Jones (D-Okla.) tried to win assurances from Stockman that the White House "will not play games like last year," referring to the administration's last-minute submission of a new budget plan in place of the committee's. Stockman said that would depend. "If the committee becomes split," the administration will back what comes closest to the president's now-dead February budget, he said.