Economic Council Chairman Charles L. Schultz told Congress yesterday "it is highly likely that the (administration's) tax reform package will end up with a significant reduction in taxes."
At another point, Schultze revised this formulation slightly, saying the package would involve "some" tax reduction.
It was the first time that the administration had said its tax revision proposals, due to go to Congress later in the year, would produce a net tax cut.
Previously the administration had talked only in terms of reduction in tax rates for both individuals and corporations, allowing for the possibility that other proposed changes would raise revenue and balance out gains and losses.
It had also been assumed that President Carter's goal of a balanced budget for fiscal 1981 would make it impossible to give up any large amount of tax receipts.
But Schultze, who gave not details of the size of the possible tax reduction or its timing, said that a growing economy and present tax laws would produce a surplus of revenues by 1981. Thus, he told the Joint Economic Committee, the President's "ambitious" balanced-budget and other goals could be met, even with a net tax reduction.
But he also assured a dubious committee chairman, Rep. Richard Bolling (D-Mo.), that Carter was not committed to a balanced budget "per se", but only in the context of a high-employment economy.
Bolling,however, warned Schultz that "those who are against spending programs have seized on a different concept of a balanced budget than you have outlined here." Bolling insisted, and Schultze agreed, that "there is nothing sacred" about a balanced budget.
Until Schultze's testimony yesterday, the administration had stated only three generalized goals for revising taxes: simplification, elimation of tax preferences to ensure fairness, and provision of incentives for indi -viduals and business to save and invest.
Schultze made clear that the rationale for lower taxes as a result of the package would be to stimulate the kind of long-range business spending necessary to create jobs. In earlier testimony and speeches, Schultze has said that the real rate of business investment must grow 9 to 10 per cent for three or four years, well above the 7.7 per cent rate in view for 1977.
Tax experts said yesterday that the administration decision to go for a net tax reduction is likely to mean a near total overhaul of the business tax structure, probably with a view to eliminating the so-called "double taxation" of dividends, a step the administration has acknowledged it is contemplating.
Mortimer Caplin, a tax lawyer and former commissioner of internal revenue in the Kennedy administration, said in a telephone interview that Schultze's statement implied on administration decision to integrate the corporate and individual tax structures, "and that's where you get tremendous losses in revenue."
Caplin said he expects that part of the loss would be made up by imposing ordinary income rates on capital gains, which now have a preferred tax status. Currently, about half of capital gains are excluded from tax liablity.
Other possible revenue raisers would be a "floor" under deductions for charitable contributions (say, excluding the first 2 per cent of gross income), and a ceiling on the amount be deducted.
Many and varied proposals for "integration" of the corporate and individual tax structures are being studied by the Treasury Depending on how it is done, corporations and shareholders together could stand to benefit. Taxes could be cut by giving the corporations a credit for dividends paid or the shareholders a credit for corporate taxes paid.
No hard decisions have been made on any tax revision issues, government officials stressed yesterday.
The President has scheduled a third meeting with his tax experts in about 10 days.
Schultze also said that the pace of economic activity in the second half of this year would slow to 5.0 to 5.5 per cent, but that for the year as a whole, the Carter goal of 5.75 to 6.00 per cent would be met.
About the course of the economy in 1978 Schultze was much more optimistic than private economists, who had testified Wednesday. Economic growth, Schultze said, would be a bit slower than the 1977 pace, but "well above the long-term trend." Unemployment, by the end of 1978 should be down to 6 to 6.25 per cent, he predicted.