Ronald Reagan is still shaping the candidacy that he will put before the American electorate this summer and fall, but on one important point he has clearly distinguished himself from President Carter:
Ronald Reagan favors huge cuts in federal taxes. He even promises that cutting taxes will help balance the budget and end inflation.
There haven't been many novel ideas in the 1980 campaign, but this one is both unconventional and politically potent. It might be potent enough to elect Reagan president -- or destroy his candidacy.
Though Reagan is firmly for big tax cuts -- he has been suggesting a 30 percent reduction in income taxes for the last two years -- the former California governor has not said he would cut government programs by the same amount, and if so, what programs. On occasion he has said spending cuts are not necessary.
Reagan may eventually hedge his proposal so it turns out to be less radical than it now sounds. Many of his advisers believe he will -- and some hope he won't.
This uncertainty makes the tax cut idea a good example of the basic dilemma of the Reagan candidacy from now until November -- whether to "take chances" by proposing radically new policies, in the words of one adviser, or to play the game more cautiously by muting some of the governor's instincts.
Reagan's position on tax cuts raises juicy political ironies. It is a reversal of traditional party roles. This year Carter the Democrat is preaching a Republican gospel of tight money, balanced budget and deliberate recession, while Reagan the Republican favors a stimulative economic policy based on tax cuts. He has even argued that a balanced budget may not be so important in the short run.
This particular irony may not survive three or four more months of 8 percent unemployment, however. Conceivably, if the recession gets deeper and unemployment continues to rise, Carter will be forced off his present economic course. By October, Carter too may be asking for tax cuts, giving Reagan an opportunity to ask what took him so long to see the light.
It is also plausible, though, that by October Carter will be able to convince the crucial swing voters that Reagan's tax program is just an elaborate -- and fraudulent -- promise of a free lunch, a danger that Reagan's advisers acknowledge.
This could happen if voters rebel against the plausibility of a program combining sharply reduced taxes and increased defense spending as a way to control inflation and, ultimately, balance the federal budget. This is one way to describe Reagan's proposals thus far in the campaign season.
In fact, senior members of Reagan's camp have been sharply divided about how to present the candidate's tax and budget policy. A more radical element in this group has pressed for a stark presentation: A Reagan administration would cut taxes 10 percent a year for three years, would "index" tax rates to inflation rates, would eliminate all federal inheritance taxes, would improve tax benefits for private industry, would increase defense spending and would promise lower inflation and smaller deficits.
In practice, this is the line Reagan adopted in the primaries, though never quite so starkly. In one television commercial, this was Reagan's message:
"High tax rates don't lower prices, they raise them. In the 1970s taxes grew faster than any other item in the household budget, including the price of energy. High tax rates discourage work and production. They add to the cost of living. If we make a deep cut in everyone's tax rates, we'll have lower prices, an increase in production, and a lot more peace of mind."
That peace of mind is guaranteed by the Laffer Curve, an invention of California economist Arthur Laffer, whose theories were first embraced in Washington by Rep. Jack Kemp (R-N.Y.) and Sen. William V. Roth Jr. (R-Del.), authors of the Kemp-Roth tax cutting plan that Reagan has adopted.
Though he is hotly disputed by numerous economists, both liberals and conservatives, Laffer has insisted that high taxes so stultify the economy that drastic cuts will release new energies sufficient to cause such substantial new growth that in the end, even the federal treasury will benefit. s
By embracing this thinking Reagan has alarmed some of the people who ordinarily support Republican candidates for president. For example, Sam Nakagama, a prominent Wall Street economist, warned clients of his firm, Kidder, Peabody & Co., that "the continued advocacy of massive tax cuts is bound to create an image of fiscal irresponsibility on the part of Mr. Reagan." Nakagama said Reagan's proposal were "inflationist."
During the late primary campaigns, George Bush began to challenge Reagan's economic analysis. Using a figure provided by Paul MacAvoy, former member of President Ford's council of economic advisers, Bush said the Reagan plan for tax cuts could push the rate of inflation up to 30 percent.
Largely to satisfy such criticism, Reagan's more conventional economic advisers -- including men who held high positions in the Nixon and Ford administrations -- want to tone down the tax proposals. Their view seemed to be in the ascendancy earlier this month, when Reagan met with former president Ford, who favors "phasing in" big new tax cuts carefully and in conjunction with spending cuts.
That would be fine, Reagan told reporters after Ford expressed his views. According to one line of speculation, Reagan's eventual relationship to the Kemp-Roth tax plan may resemble President Carter's relationship with the Humphrey-Hawkins full employment bill, a measure that was progressively diluted until Carter would agree to embrace it.
But it may be too late for Reagan to retreat from the flat recommendation he has been making for many months that federal income taxes be cut by 30 percent. If he sticks to that goal, Reagan will be asked repeatedly this year to explain what government programs he would cut to compensate for the lost federal revenue, or how big a budget deficit he would tolerate.
Senior Reagan advisers insist that they have good -- if complex -- answers to those questions. Some say Reagan can list programs to be cut. Others argue that the present tax structure will actually produce big surpluses if Congress will just give it a chance to do so by ceasing for a few years from making new expenditures.
Interviews with several Reagan advisers -- all of whom asked to discuss their views on a "not-for-attribution" basis -- reveal that they remain divided about how to advertise Reagan's economic policies. There is well-publicized split between more conventional advisers like Alan Greenspan, William Simon and George Shultz (all veterans of the Nixon-Ford years) and the more radical group associated with the Laffter Curve, but even within the former group there are significant disagreements.
So, for example, one of the more conventional Reagan advisers said the candidate should indeed recommend specific cuts in the federal budget. Another adviser, who has worked closely with the first man, said flatly it would be a mistake to list specific budget cuts until candidate Reagan became President Reagan, and had full controll of the Office of Management and Budget.
One issue dividing the Reagan camp but not yet widely discussed in public is the relationship between the cut in personal income taxes that the candidate recommends and the "supply side" tax cuts that all the advisers agree are most important to stimulate the economy.
"Supply side" is a euphenism for business and industry -- creators of "supply." The real fashion among conservative economists is to give large new tax breaks to business to encourage modernization and expansion -- personal income tax cuts are less appealing to many of these economists.
But Reagan has made income taxes his issue, not least because he wants to appeal to the Democratic and independent voters a Republican must win over to be elected. Income tax cuts have more political appeal than business tax reductions.
Reagan's pronuncements on energy also have economic implications that will have to be dealt with during the campaign. Essentially Reagan has argued that energy needs can be met by freeing the energy industry from all regulation and excessive taxation.
He opposes mandatory conservation measures, including mileage standards for automobiles, and says "the leading oil geologists in the country will tell you that with decontrol [of oil prices] we could be producing enough oil to be self-sufficient in five years."
Reagan has come out for abolition of the minimum wage (saying this will create more job opportunities), another potential point of controversy. He has also urged that some formal tie be reestablished between the dollar and gold. They last had a formal connection when gold cost $35 an ounce; last Friday it was selling for about $610.
During most of 1980 the Reagan campaign has been promising a major economic policy statement clearing up some of the ambiguities in the governor's public statements, but that statement has not appeared. Greenspan and Richard Whalen, another of the more conventional Reagan advisers, have drafted an all-encompassing statement for the candidate, but he has not approved it.
William J. Casey, Reagan's campaign director, has told colleagues that the governor's next important address will be his acceptance speech at the Republican National Convention in July. That may be the next opportunity for a comprehensive statement of Reagans' economic views.