THE ADMINISTRATION has been busy in recent weeks trying to sooth concerns of potential losers from the tax-overhaul plan the president will unveil Tuesday evening. There is one likely loser from the new plan, however, that may not be getting the attention it deserves. That is the Treasury's own tax coffers.
Probably the most expensive concession the president has embraced is his reported decision to move ahead with a near doubling of the personal exemption. The administration had been under strong pressure from some Republicans in the House to increase the exemption to $2,000 without delay. The increase is worth most to higher- bracket taxpayers, especially those with large families, but it also relieves many low-income taxpayers of having to pay any income taxes at all. Another reported change involves updating of the earned-income tax credit, a unique and substantial benefit for working poor families. This is a needed step.
Also tugging on the Treasury for better treatment have been powerful lobbies from the oil and gas and real-estate industries, insurance companies and other sellers of fringe benefits, universities, museums and other organized charities, stockbrokers and venture capitalists. Few, apparently, have gone away empty-handed.
The Treasury's analysts have been struggling to offset these revenue losses by such devices as new taxes on windfalls produced by tax reforms and tightening minimum tax payment rules for high-income individuals and companies. But their efforts run counter to another potent source of pressure on the White House -- supply-siders arguing for still lower tax rates for the wealthy.
Accusing the White House and Senate Republican leaders of succumbing to "deficit frenzy," various supply-side spokesmen have been urging the president to reduce tax rates still more with the apparent loss of revenue -- and increase in the deficit -- to be accommodated by the bookkeepers through a departure from "static revenue neutrality." In simpler terms: assume that, through the miraculous working of supply-side economics, cutting taxes produces higher revenues.
That assumption didn't work as advertised after the big 1981 tax cut, and the resulting revenue loss is, according to the administration's own estimates, a major reason that the country has piled up roughly a trillion dollars in debt since then. The supply-siders, like all true-believers will, offer various explanations as to why, because of fine points of timing or design, the promised shower of revenues failed to materialize or why, if you assume this and count only that, it really did work after all.
But whatever truth lay then in the supply-side hypothesis surely has less applicability now after tax rates on the wealthy have already dropped substantially. Once the tax bill hits the Hill, all the pressures will be to add more concessions -- and lose more revenue. That's why the most important feature in the new tax plan will be its bottom-line -- with no departures from old-fashioned accounting.