The Carter administration is considering cutting back its $25 billion tax reduction proposal - possibly by $5 billion or more - in part as a move against inflation.
Officials say the prospect has been discussed by the steering committee of the President's Economic Policy Group. While no decisions have been made, insiders say there is significant support for the step.
The smaller tax cut has been suggested in the face of mounting concern about renewed inflation. At the same time, some administration policymakers believe the economy may be growing fast enough that a $25 billion tax cut is not needed.
Members of the House Ways and Means Committee have indicated they, too, are having second thoughts about the $25 billion plan because constituents are fearful a big federal deficit will spur inflation.
Policymakers apparently have postponed any decision for at least two more weeks to await publication of first-quarter key economic statistics.Although the quarter began sluggishly, economy activity has picked up in recent weeks.
After that, officials say, the decision would be partly economic and partly political. If the administration decides to pare its proposal, one question would be whether to do so itself or let Congress act.
If the administration asks Congress to trim the tax cut, it would be a carbon copy of its performance last year when Carter withdrew under pressure his famous $50-a-person tax rebate.
Carter proposed the rebate in his January 1977 economic stimulus recommendations, and fought for it vigorously all spring. However, he abandoned it abruptly, in the face of an improved economy and heightened opposition in Congress.
Paring the size of the tax cut reportedly is being proposed by W. Michael Blumenthal, the secretary of the treasury. Officials say several other policy makers support the step, although it's far from unanimous.
Blumenthal was not available for comment yesterday, and a spokesman declined to confirm or deny that he has taken this position.
However, officials noted that when the secretary was asked about the prospect at a press conference on Wednesday, he replied he hopes that if Congress decides to alter the tax package any way, it will "err on the conservative side."
Blumenthal was a majorforce behind Carter's decision last year to withdraw the $50-a-person rebate. He argued then that the rebate was unnecessary because of improvements in the economy.
Officials say the Economic Policy Group has only begun discussion on the tax cut issue and is using the $5 billion figure only as a "ballpark estimate." Soruces say the group hasn't decided which proposal tax cuts should be pared.
Carter has proposed $33.9 billion in tax reductions for individuals and business, offset by $9.4 billion in revenue-raising tax "reforms," for a net cost of $25 billion. If the package were cut $5 billion, it would total $20 billion.
Congress has indicated repeatedly there is little, if any, support on Capitol Hill for Carter's tax "reform" proposals. The Whte House has warned if the "reforms" aren't enacted, thatwould raise the cost of the package.
The Ways and Means and House and Senate Budget committees all have recommended a tax cut of $28.4 billion, but this includes $9 billion for extensions of the tax cuts enacted in 1977.
Several members of the Ways and-Means Committee have indicated they may back a proposal by Rep.
Charles A. Vanik (D-Ohio) to limitany tax measure to a simple extension of the 1977 cuts, which otherwise would expire.
The Ways and Means Committee is scheduled to begin markup of the Carter tax package on Monday, with the outlook now uncertain, Presumably, the panel would demand that the-administration make up its mind soon.
The developments came as the White House officially denied it was considering any changes in the president's tax cut package.
Asked whether the administration would accept a smaller tax reduction, Jody Powell, the President's press secretary, said: "I've had no indication of a different view by the administration on that."
At the same time, however, Powell said he found it "interesting" that Congress now was cooling toward Carter's tax reduction package while some members simultanelusly were pushing for a rollback in Social Security taxes.
He said the administration regarded that stance as inconsistent. "Our position has not changed," Powell told reporters. "If we fall to act," he cautioned, "we risk a serious economic slowdown in the next year."
Meanwhile, administration sources confirmed that Blumenthal and Charles L. Schultze, chief White House economist, were not told until the last minute that Carter was naming special trade envoy Robert S. Strauss to be his chief inflation fighter.
Carter announced Strauss' designation in his anti-inflation speech Tuesday. Blumenthal and Scheltze briefed economic reporters Monday night, but apparently did not know about Strauss' appointment.
Sources said both were piqued at having been left out of the decision on Strauss. The incident was taken as evidence of a continuing split between Carter's economic advisers and White House political aides.