Treasury Secretary Donald T. Regan said yesterday he probably will recommend a modified flat tax plan to President Reagan as the administration's long-promised tax simplification program.
Regan's remarks to reporters at a breakfast meeting were the most concrete report on where the administration is heading in its tax reform program, which was promised by President Reagan in his State of the Union Address in January. Regan is supposed to make his recommendation to the president in December.
The administration would join the ranks of some Democrats and other Republicans in proposing a so-called modified flat tax, which would reduce marginal tax rates, place these tax rates in three or four large increments and eliminate some deductions and exemptions.
Regan said that a modified flat tax "was the thinking now," although it was possible that could be changed. He said he didn't know what deductions would be eliminated in the administration's plan or what the tax rates would be.
However, he said that the administration plans to retain the deduction for mortgage interest. Regan previously has ruled out a pure flat tax -- which would tax all taxpayers at one rate and eliminate deductions and exemptions -- and a national sales tax or value-added tax as substitutes for an income tax.
Regan said the administration wants to make its tax plan less progressive than the current tax system, which would mean reducing the marginal tax rates at the high end of the tax-paying scale more than at the lower-income end.
A Regan spokesman, interpreting his remarks, said that although tax rates for high-income workers may be dropped significantly, the elimination of deductions and tax shelters used by wealthier people could increase the amount of tax they pay. Regan denied that the administration wanted high-income taxpayers to pay less than they do now.
When asked whether it was likely that he would recommend some sort of flat tax to the president, Regan said, "At this point, again I would think so -- a modified flat tax -- not a pure flat tax but a modified flat tax.
"That's the thinking now, but again subject to change because right now we're going through the stage of wrapping up the final details and . . . I don't know until I see the pricing," or revenue estimates of such a program, Regan said.
Other tax breaks, such as those for oil, timber, farming and banking industries, are being reviewed, and he emphasized that no decision had been made on those areas. "I don't want to get the juices flowing among lobbyists," Regan said.
Regan said his department's study of the tax plan would go beyond studies of other modified flat tax proposals introduced by Sen. Bill Bradley (D-N.J.) and Richard Gephardt (D-Mo.) and another plan of Rep. Jack Kemp (R-N.Y.) and Sen. Robert W. Kasten (R-Wis.).
On Tuesday, Sen. William V. Roth Jr. (R-Del) and Rep. W. Henson Moore (R-La.) introduced their own tax-reform proposal, which would provide tax rates between 12 percent and 34 percent and would allow families to save up to $20,000 tax free in new "super" savings accounts.
The range of marginal tax rates would be from 14 percent to 30 percent for the Bradley-Gephardt proposal and from 20 percent to 28 percent for the Kemp-Kasten version. Under current law, marginal rates range from 11 percent to 50 percent.
All these proposals would retain the politically sensitive deductions for mortgage interest and charitable contributions. However, the Bradley-Gephardt proposal would make these deductions available only for those in the 14 percent tax bracket -- taxpayers earning between about $3,000 and $25,000 if filing singly.