Commerce Secretary Malcolm Baldrige said yesterday the Reagan administration should retain incentives for business investment in the new tax simplification plan to counteract a sharp drop in new orders for private capital goods.
Baldrige's remarks echoed those of Treasury Secretary James A. Baker III questioning the proposed elimination of many popular tax breaks for business included in a tax simplification plan released by the Treasury Department last November. During three days of testimony before Congress last week, Baker said that he was concerned that the Treasury plan could hurt capital investment and jeopardize the economic expansion.
Baldrige's comments were his first publicly on the need to retain business incentives in the tax reform plan and were described by aides as conforming to the wishes of some within the administration to keep some business breaks that the initial Treasury plan would eliminate.
The plan, unveiled by former Treasury Secretary Donald T. Regan, would eliminate many tax breaks while lowering the maximum marginal tax rate from 46 percent to a flat 33 percent.
Business groups have been lobbying the administration to retain business tax breaks such as the accelerated depreciation schedule and the investment tax credit.
Baldrige's remarks came with the release of a report showing a 3.8 percent increase in new orders for durable goods in January, but an 11.5 percent decline in new orders for nondefense capital goods, a barometer of business' plans for future expansion. Baldrige called the drop "disappointing."
"January bookings for this component were the lowest since August 1983, indicating the need to retain investment incentives," Baldrige said in a statement.
Some economists have suggested that business spending on capital goods may have declined somewhat because of uncertainty over the Treasury's plan.
Many others have said that a slowdown in business spending is usual for an advanced stage of an economic expansion.
In addition, many businesses are buying imported goods, which are relatively cheaper because of the rising value of the dollar.
Economist Alan Greenspan noted recently that real spending on nondefense capital equipment may increase by no more than 10 percent this year.
However, data on orders placed with domestic producers suggest that is short of the outlays that can be expected in the second half of this year, Greenspan said.
"We believe the difference reflects the increasing share of such purchases going to foreign manufacturers combined with the improvement in delivery times domestically," Greenspan said.