Indexation of the income tax system is not necessarily a reprehensible idea. Inflation is, after all, a shoddy way to raise taxes. But the people who don't want to raise taxes that way seem to be the people who don't want to raise taxes any other way. They disapprove of large deficits in principle, but don't plan to do much about them in practice. There's a lot to make you uneasy about both sides of the indexation argument.
Beginning in 1985 all the income tax brackets, as well as the standard exemptions and deductions, are to rise each year with the consumer price index. That was part of the gigantic Reagan tax bill in 1981. It's intended to keep inflation from raising people's taxes by pushing them into higher tax brackets. A good many people in Congress think that they ought to repeal it.
The case against indexation is not one of high principle, but simply that the government needs money. The original Reagan strategy assumed that lower taxes would enforce lower spending. But it hasn't worked out that way. Mr. Reagan has found budget-cutting harder than he had thought. The federal deficit is now in the range of $200 billion and would continue there next year even under Mr. Reagan's own budget proposals. If he doesn't like tax increases that are generated by inflation, what kind of tax increases would he prefer?
The ideal answer to the indexation question is to hold inflation at zero. If consumer prices are stable, it doesn't make any difference whether the tax system is indexed or not. Too great a concern in Washington for indexation suggests, to the financial markets, not nearly enough concern for keeping inflation down.
If the White House and a majority of Congress join forces in a great defense of indexation, people elsewhere will assume that Washington anticipates rising inflation and is merely trying to shield one very vocal constituency, the middle-income taxpayers, from one of its consequences. Mr. Reagan and his allies in Congress might want to consider a little more carefully whether they wish to convey precisely that impression.
The perfect tax system might perhaps be indexed. But that isn't the main issue. Behind indexation looms a reality of much more urgent concern: the American tax system, under present law, falls dangerously short of balancing the spending that, after two years of intense debate, Americans--including Mr. Reagan--have decided the country wants and needs.