The same Congress that last year passed the biggest tax cut in history--$350 billion in the first three years--now is poised to pass the biggest tax increase on record, about $100 billion in that same period. But it is far from a sure thing. "If a tax increase had gone to the House floor last week, it would have lost by 100 votes," said Jack Albertine of the American Business Conference, an experienced Hill-watcher.
Earlier, the bill barely squeaked by in the Senate, and the House avoided a vote by sending the "Tax Equity and Fiscal Responsibility Act of 1982" directly to a Senate-House conference.
Albertine expects that the legislation, carefully labeled a tax "reform" bill by its chief sponsor, Republican Sen. Bob Dole of Kansas, eventually will pass, after an awful lot of blood is spilled. But the situation has become so volatile that any prediction is highly speculative at the moment.
The Republican Party is split as never before on the wisdom of scaling back a goodly chunk of last year's record tax reductions for business, while hitting consumers with higher cigarette, telephone and airline ticket taxes--all in the middle of a worsening recession.
Republican traditionalists hate to boost taxes in an election year, but assume that to let the budget deficit mushroom would be even worse. That's not the way dedicated "supply-siders" like Rep. Jack Kemp (R-N.Y.) see it. They bitterly argue that the president, in backing the tax boost, is scuttling the basic thrust of Reaganomics--a lowered tax burden to stimulate business investment. "We're becoming tax collectors for the Democratic spending program"--that's the phrase that's repeated by Kemp and his followers on the Hill.
They suggest boldly that President Reagan had been led to believe by presidential aide Jim Baker and others than the bulk of the monies to be raised through the Dole bill was through compliance measures and very little through actual tax increases.
Reagan last week attempted to put down the incipient rebellion in Republican ranks, but the feeling runs deep among some of his supporters that the president is quitting too early on his own program.
If Reagan really wants the tax increase bill, he will have to mount the kind of pressure to keep defecting House Republicans in line that will further embitter his right-wing supporters.
The truth is that Reagan's gut instincts are closer to Kemp's than to Dole's. At best, he is lukewarm on the need to raise taxes. He tells some businessmen brought in by Albertine: "I wasn't elected to raise taxes, and I don't like doing it." And he wrote Washington Times columnist John Lofton: "Personally, I had to swallow very hard."
But Reagan bought the tax package. The way his key advisers see it, that was acting responsibly. But the conservative Heritage Foundation--unhappy with Reagan on other counts as well--calls the tax package "a breach of faith." And a couple of dozen of the old hard-core Reaganauts, including former White House advisers Lyn Nofziger and economist Martin Anderson, met last Wednesday night in a South Capitol Street office building to suggest an anti-tax increase strategy.
Another rebel, economist Paul Craig Roberts (a supply-side theorist who quit as an assistant Treasury secretary earlier this year), told me that "the result of the tax increase will be a larger, not a smaller deficit" because it will worsen the recession. He adds that it will only stimulate further unnecessary expenditures "by providing Congress with paper tax resources."
The Heritage Foundation sees the bill as "a massive denial of supply-side principles," while the Chamber of Commerce (despite a tense internal split on the issue) publicly complained that half of the revenue raised by the Dole bill comes out of business' pocket, whereas it got "less than 20 percent of the tax relief for 1983-85 . . . ."
"So we have yet another government," Roberts says, "that came to town with one policy, and six months later announced a new one." Roberts doesn't say who's responsible for the "flip-flop," but the supply-siders are most upset with OMB Director David A. Stockman, presidential aide Baker, and Senators Dole and Pete Domenici (R-N.M.). They predict this group will talk Reagan into yet another tax increase next year.
But what are the alternatives to a tax-boosting bill this year? There aren't any, says Malcolm Baldrige, the plain-speaking secretary of Commerce. Without the additional revenues provided by the bill, he says, the deficit would soar out of sight, and interest rates would climb. For fiscal 1983, the red ink would hit $175 billion. And for fiscal 1985, the prospect would be a $250 billion deficit.
Skeptics on Wall Street, who believe that the administration has yet to come to grips with excessive drains on the budget through entitlement and bloated defense programs, nonetheless think that the Dole bill is a minimum first step toward more manageable budget deficits. And support is being ginned up for the bill among a group of business lobby groups, headed by the American Business Conference.
The bill can't pass, of course, without massive Democratic support in the House--and individual Democrats are terrorized by the thought of voting for a tax increase during an election year. "What I can see," explains a Democrat, "is that inevitable 30-second TV commercial during the election campaign next fall that says: 'Congressman Joe Zilch voted to increase your taxes.' "
The Democratic leadership, nonetheless, will try to line up support for the bill--but only if a majority of the Republicans go along. Many of the bill's provisions, such as withholding on interest and dividends, are consistent with mainstream Democratic views over the years. And if this tax increase bill isn't passed, House Democratic leaders know that some other tax bill will have to be passed in the future--perhaps with Democrats rather than a Dole in the lead.
If the GOP right-wing and hesitant Democrats (including those who would rather let Reagan take the rap for a swollen deficit than help bail the nation out of crisis) win out, the financial markets will likely--and correctly--conclude that tax and budget policy might better be made at the Connecticut Avenue zoo than at either end of Pennsylvania Avenue.