Very little separated the tax bill that the president drove so triumphantly through the House last week from the alternative favored by the Democratic leadership. But a fundamental, philosphic difference as to how the economy works divides Ronadl Reagan from most Democrats.
So the tax vote is pregnant with large consequences for American society and politics. Indeed, what happens to the economy now affords a test of rare clarity as to the wisdon of the president's approach.
A massive tax reduction of $150 billion between now and 1984 was the central feature of the bills backed by both the administration and the Democratic leadership. Both the administration and the Democrats also sought tax breaks for married couples, and for persons with capital gains and with estates to pass on and gifts to make. Several commercial interests -- notably oil companies and savings and loan institutions -- also came in for special benefits in both bills.
As to differences, the Democratic reductions were slightly more favorable to persons earning less than $50,000 annually than were the Republican cuts. The Democrats would have made application of the third-year tax cut dependent on economic performance justifying the president's forecasts of lower inflation and continued economic growth. The Republicans tacked on to their bill a proviso whereby, beginning in 1985, income tax liabilities will be reduced as inflation mounts.
A measure of how close the two versions actually were came from the Republican leader in the Senate, Howard Baker. Baker was asked, before the vote, about the difficulties of arranging a compromise between the tax bill that had gone through the Senate and the one about to clear the House. He said he was confident a reconciliation could be arranged in a couple of days, no matter which measure passed the House.
But the difference in philosophy transcends and transforms the similarities. To a large extendt, the vote in the House was a vote on diametrically opposed economic views.
The president believes that "Government," as he put it in one message to Congress, "is the problem." He wants to reduce the tax base massively in the next three years, and to prevent any automatic increase through inflation thereafter. He has already put through major cuts in projected social payments, and he figures to make further reductions in federal spending. His aim is to make private spending decisions the driving force of the economy.
As he said in a speech delivered in Atlanta Thrusday, "The tax vote yesterday means that the independent businessman, the farmer, the shopkeeper, will be able to look ahead for three years and see what the tax situation is going to be and thus be able to plan."
Lack of confidence, the president claims, will be dissolved in these conditions, and uncertainty swept away. There will be a new burst of savings that will be directed to investment, especially in the production of items currently in short supply. The consumer price index will drop as shortages ease. Wage bargains will be moderate, and as inflation heads down, interest rates will follow. In time, there will be a surge of growth and productivity that will carry all Americans to higher levels of prosperity.
Most Democrats still regard the government as a cetral balance wheel of the economy. They think shrinkage of the tax base will make it extremely hard for government to meet its responsibilities in defense and social services. They fear that in meeting these inescapable requirements, the government will incur big federal deficits. The Treasury will be driven to borrow on the open market, thus keeping interest rates high. The high rates, they calculate, will weigh down various industries already in trouble -- especially construction, autos, airlines and savings and loans. The Democrats foresee heavy unemployment as a result and serious social strains, maybe even to the point of creating disorder in the major cities.
If the Democrats are right, suffering lies ahead. Thus, they may be able to reforge unity in the crucible of hard times. If the president is right, there lies ahead what he called a "renaissance" of the American economy. In that case, social peace will probably prevail, and Reagan will make good on the promise held out by the 1980 elections.
Unknowns of mass psychology play a central role in determining the outcome. Only persons more sure of themselves than this columnist would hazard a prediction. But the country does have, to a degree unusual in history, a clear choice. For that, all of us can be grateful.