After saying no, no, a thousand times no to tax reduction for 18 months, President Carter is poised to endorse a cut that -- however puny compared with what is proposed by Republicans -- threatens to outflank them in the fall campaign.
"It is no longer a question of if, but of when," one senior presidential aide told us. Carter is likely to announce his changed mind during the summer, with Congress taking up the tax cut in September -- just in time for the Nov. 4 election.
Carter's tax cut would take effect next Jan. 1 for the last nine months of the fiscal year beginning Oct. 1, with a Treasury price tag of $11 billion in lost revenue. Of that, $2 billion results from beginning accelerated tax depreciation of new equipment. The remaining $9 billion in in temporary income-tax credits to cushion next year's new round of Social Security payroll tax increases.
Such hesitant half-stepping is jeered by Republican congressmen who want $30 billion-a-year permanent cuts in income-tax rates on the Kemp-Roth model. The White House would neither significantly ease the American taxpayer's massive burden nor introduce new incentives into the economy. But in strictly political terms, a tax cut is a tax cut no matter how shabby; and a tax cut might well save Jimmy Carter.
Actually, no formal proposal has yet reached the president's desk.. Officially, the White House line still ties tax reduction to a balanced budget for fiscal year 1981 (beginning Oct. 1). But everybody knows the recession has assured yet another budget deficit, thanks to increasing spending and decreasing revenue.
Carter will be faced with unemployment, underemployment and continued double-digit inflation as the election nears, posing this question: what can be done to keep the economically beleaguered lower-middle income bracket voter from abandoning Democratic loyalties for Ronald Reagan?
A wage-price freeze seems out. In that department, at least, Carter really means what he says, That leaves a tax cut. His advisers claim to have learned their lessons from the 1978 tax bill, when Congress seized the initiative and the president got no credit. This time, they say, Carter will collaborate with the House Ways and Means Committee.
However, a problem is posed by the committee chairman, Rep. Al Ullman of Oregon. Regarding existing tax rates as a holy of holies not to be defiled, Ullman fears Congress will run wild with tax fever if his commitee reports a bill. He would rather sit tight this year.
But Rep. James Jones of Oklahoma, a moderate Democrat and the rising power on Ways and Means, long has been pushing a tax package that suspiciously resembles the White House's. While Jones took the House away from Carter in passing the 1978 bill, he and the president are working together in 1980.
Those Republicans who view Kemp-Roth as too radical will eagerly embrace Jimmy Carter's tax cut. So will corporate executives who flinch at across-the-board tax reduction. The White House-Jones package is nearly identical to the tax proposal ($20 billion revenue loss over 12 months) of George Bush, who has focused his presidential campaign against Reagan's avowal of Kemp-Roth.
But it is viewed as a sham by supply-side economists who want investment and incentive fostered through tax reduction. It scarcely dents the budget's $100 billion increase in revenue, including $60 billion in new taxes. While applauding the modest start toward encouraging new equipment purchases, these crtics consider the temporary tax credit election-year eyewash.
While Jones eventually wants deep ax-rate cuts, he is content with a modest Carter-blessed package as a starter. Not so the Kemp-Roth Republicans. They see the president co-opting their issue on a bill that, far from restoring economic incentives, barely makes up for next year's Social Security tax increase.
Warnings are being issued on Capitol Hill by Jones and others that if either House or Senate starts cutting tax rates, there will be no bill at all. Don't count on it. We asked one White House aide: what will the president do if just a little tax reduction is passed on by Congress? The surprising answer: "That might be all the better." The Republicans then would be outflanked for sure.