Treasury Secretary-designate James A. Baker III said yesterday the Reagan administration will give equal priority to deficit reduction and tax simplification this year despite overriding concern in Congress about the large budget deficits.
Baker, the White House chief of staff who is switching jobs with Treasury Secretary Donald T. Regan, made his comments during his confirmation hearing before the Senate Finance Committee, which later unanimously approved his nomination. Finance Committee Chairman Bob Packwood (R-Ore.) said Baker probably would be confirmed by the Senate early next week.
Baker told the committee that the administration plans to move deficit reduction and tax simplification on a two-track system, similar to the strategy followed during the president's first term when Congress considered both budget cuts and tax increases.
Many of the committee members said, however, that their first priority would be reducing the federal deficit, and that tax simplification would have to wait. Packwood later told reporters that the Senate would finish its spending reduction plan within six weeks and that there would be ample time for tax simplification.
After the hearing, Senate Majority Leader Robert J. Dole (R-Kan.) also said the first priority must be deficit reduction, even though "there may be two tracks."
"My views are those of the president," Baker told the committee. "His views are that these are equal priorities on the domestic agenda, that is tax fairness, tax simplification on the one hand and deficit reduction on the other."
The president "would like to see them proceed through the legislative process on separate tracks so we don't get hung up in a negotiation on 'We'll do this much spending if you'll accept this much in tax increases,' " Baker said.
"I would suggest that it's not totally unlike our experience in 1981 when we had a major budget initiative and we had a major tax initiative and we found the resources to do both and they represented the foundation of the president's domestic agenda in that year," Baker said.
Baker, who is a lawyer and not an economist or businessman, had few specific responses regarding changes he wanted in the tax simplification plan prepared by the Treasury Department under Regan or where the administration planned to cut the $200 billion federal budget deficit.
When asked whether he or the president had embraced Regan's tax plan, Baker said they hadn't, and that the proposal was just a starting point for considering an administration plan.
He said he "would take a close look at" elimination of preferable tax treatment of capital gains in the Treasury tax reform plan but had no other specific thoughts about it. He said "there are probably others [proposed changes] that some argue have a detrimental effect on savings, investment and capital formation," Baker said. "We want to make sure that that's not the case."
During his tenure at Treasury, Regan several times has publicly criticized the Federal Reserve's tight monetary policies. Last month, Regan told reporters that the administration was studying ways to eliminate the independence of the Fed and bring it under control of the White House.
Baker said yesterday that "there are going to be tensions" between the Fed and Treasury. But he said both entities should work together and that he planned to have regular meetings with Fed Chairman Paul A. Volcker. Regan also had such meetings.
Baker acknowledged that lower-level staffers at Treasury were studying a proposal to change the Fed, but he said he had formed no opinion about it except that the tenure of the Fed chairman should coincide with that of the president.