President Carter's proposal to cut federal income taxes $25 billion next Oct. 1 is in trouble in the House Ways and Means Committee.
Talks with key committee members indicate that - because of increasing concern about inflation and the budget deficit - many now believe the tax cut should be pared sharply, perhaps even to the point of merely extending tax reductions enacted last year.
Rep. Al Ullman (D-Ore.), chairman of the panel, said in an interview that although he personally still supports a moderate-size tax cut, he sees "less and less support" for a major tax reduction this year. With inflation now on the rise, he said, members feel "we ought to cut back."
While there's no hard evidence yet that the committee actually will scrap Carter's tax cut plan, most members believe that contrary to traditional election-year habits, Congress probably will enact a smaller tax reduction than Carter proposed - not enlarge it, as usually is the case.
Several key members on the panel said if the issue were to come up today, the prospects for a major tax reduction would be touch-and-go. One politically astute member asserted that "we can't count the 19 votes here yet" needed to push through a sizable tax-reduction bill.
The committee's change in sentiment about the income tax proposal was disclosed to Carter yesterday at a White House meeting with committee Democrats. The Democrats also told him there was virtually no support for his "tax reform" plan.
Meanwhile, G. William Miller, the man Carter appointed as chairman of the Federal Reserve Board, chimed in with similar views, urging the president either to cut back the size of the tax reduction or to postpone it from Oct. 1 to next Jan. 1 to help fight inflation.
In a breakfast meeting with reporters. Miller described such a move as "one alternative" to help reduce the budget deficit. He asserted that even if the tax cut were postponed until 1979, it would trim the federal budget deficit by 9 billion.
The administration's response was to oppose any scaling-back of the tax cut. Carter told the Ways and Means members the tax cut was needed to bolster the economy, and insisted that voters were solidly in favor of his "tax reform plan.
And, separately, W. Michael Blumenthal, the secretary of the treasury, told a news conference yesterday morning in the wake of the Miller remarks that "without the tax program we would have economic suffering in this country that is unnecessary."
The tax cut proposal may face an early test when the Ways and Means Committee begins formal markup of the president's package next week. Rep. Charles A. Vanik (D-Ohio) served notice yesterday he plans to move to scrap the Carter plan and simply extend last year's cuts.
The Vanik proposal would continue some $9 billion in tax reductions that were enacted last year, including the $35-a-person general credit for all taxpayers, the earned income credit for the poor, the job-creation tax credit and a small business tax break.
Several panel members speculated that the Vanik plan might well be approved if amended to include only modest additional income-tax reduction. A number of members asserted the vote would be "close."
The committee's change in sentiment stems from two factors: Concern among voters aout mounting inflation, and a reported feeling in some quarters that the economy isn't as bad off as they earlier thought it might be.
Rep. William R. Cotter (D-Conn.), one of those Ways and Means members now having second thoughts about the tax cut, said his constituents now consider "inflation the No. 1 enemy." Cotter said he may vote either way - for a tax cut or for the Vanik plan.
The outlook for the tax-cut proposal is being clouded further by a simultaneous move in Congress to roll back the recent Social Security tax increase. Many members want to finance the reduction in payroll taxes by trimming back the size of the income-tax cut.
Miller's proposal to trim the tax-cut package marked another stepup in the pressure the Fed has been placing on the administration in recent weeks. The chairman has hinted publicly if the White House doesn't slow inflation effectively, the Fed will tighten money and credit conditions.
Miller told reporters yesterday he thought Carter's new anti-inflation measures would be helpful, but that "the real question is, will the private sector follow this example?" He warned that if business and labor don't help slow wages and prices, "the necessity for Federal Reserve action will be greater."
Blumenthal told his news conference the administration hopes to persuade businesses and unions to keep their wage and price increases between one-half a percentage point and 1 point lower than their average rise in 1976-77, depending on the industry involved.
On a separate topic, Blumenthal also expressed concern that the legislation to provide new loan guarantees to New York City might be in trouble in Congress if the city does not hold the line on contract negotiations with municipal unions.
Miller, in his remarks on the tax-cut package, aruged that the present Carter proposal was no longer in tune with the times because it was drafted when the administration expected the inflation rate to be about 6 percent. Inflation now is considered likely to rise to about 7 percent.
Blumenthal told his press conference yesterday that while the administration still would fight for passage of its entire tax-cut proposal, officials hoped that if Congress felt compelled to alter the proposal, it would "err on the conservative side" rather than enlarging it.
The $9 billion in extension of last year's tax reductions is not included in the $25 billion Carter has allocated for his own tax-reduction pacakge.
Congressional budget committees have proposed a $28 billion limit on total tax reductions - the $9 billion in extensions and $19 billion in new tax cuts.