Treasury Secretary G. William Miller said yesterday that a tax cut should be Congress' first order of business next year, suggesting as possibilities a reduction in personal income-tax rates, a credit to offset coming Social Security tax increases and larger depreciation allowances for business.
Miller warned, however, that Congress should not try to work out such long-term consequences for the economy "in the political crosscurrents of an election year." Republicans, including presidential candidate Ronald Reagan, want action on a cut immediately.
The Treasury secretary, appearing before the House Ways and Means Committee, said any 1981 tax changes should "reduce the burden of taxes on households and on labor cost . . . [and] provide incentives for productive business investment." Specifically, he said Congress should consider:
Reductions in personal rates to limit "bracket creep" as inflation pushes taxpayers into higher tax brackets even though their real incomes have not gone up, with special attention to the so-called marriage penalty suffered by many two-wage families who pay more taxes than single-wage families with the same income.
An income-tax credit for both employers and employes to offset increases in the Social Security payroll tax scheduled for Jan. 1, with refunds paid to taxpayers who owe less income tax than the credit.
Increased depreciation allowances that would let businesses recover more quickly, through lower taxes, their investments in buildings and equipment.
Democratic members of the House committee appeared to be solidly behind the Carter administration's call for delay on any tax cut, but committee Republicans challenged Miller's assertion that Congress could not act responsibly on a bill in the heat of a political campaign.
"Why is it that after four years the Treasury can't come up with its own tax proposal now," asked Rep. Willis D. Gradison Jr. (R-Ohio) at the end of a brief, intensely partisan statement.
"Let me put it to you straight," replied an annoyed Miller. "It would be like putting red meat in front of hungry dogs and saying, 'Sic 'em.'"
In his opening testimony, Miller said any bill passed this year "would be subject to the full weight of pressure from every faction that has an interest in special relief. If any agreement were to emerge from this environment, it would very likely be a melange of special interest provisions -- just the opposite of what is needed."
But Rep. Barber Conable of New York, ranking Republican on the committee, declared, "The economy is in a shambles," and said his party would continue to push for a 10 percent across-the-board cut in individual income tax rates and a new approach to depreciation known as "10-5-3."
That type of cut, which Reagan has endorsed, would break the present link between the actual useful life of a building or piece of equipment and the period over which the owner writes off its cost for tax purposes. Under "10-5-3", which Miller attacked as too costly and as providing much bigger cuts for some industries than others, businesses would write off the cost of structures in 10 years, equipment in five years, and cars and trucks in three.
Instead of "10-5-3," Miller suggested a simplified approach to depreciation that would retain a link to actual useful lives of assets but accelerate the speed with which a business could recover its costs.
Responded Conable, one of the authors of "10-5-3." We intend to push-for '10-5-3' as is" with perhaps only small changes. "We will not be diverted by watered down and politically inspired alternatives."
Rep. Sam Gibbons (D-Fla.) said, "the action that has begun to unfold in Congress could be mischievous if not carefully thought through." He warned the committee it "better be prepared to have a tax proposal land in the House of Representatives in the middle of September having been passed by the Senate."
In fact, the Ways and Means hearings which will run through next week, were called by Chairman Al Ullman (D-Ore.) largely because of a vote in the Senate that directed its Finance Committee to come up with a tax-cut package by Sept. 3.
The Finance Commitee will begin its own hearings today with Miller as the first witness.
The question of a tax cut came up yesterday at two other hearings.
At one, Federal Reserve Chairman Paul Volcker lent his backing to the administration on the issue of timing. "The appropriate time for decision seems to me late this year or early 1981," Volcker told the Senate Banking Committee.
At the other, the administration's reluctance to move toward a cut this year drew criticism from Walter W. Heller, chief economic adviser during the Kennedy and Johnson administrations, at the opening day of Senate Budget Committee hearings on drafting a second budget resolution.
Heller acknowledged that time and political imperatives rule out a "magic-wand" approach to enacting a tax cut, but he chided the administration for "unwillingness to make a firm pledge of a 1981 tax cut . . . thereby suggesting that no action should be taken in 1980."
Heller suggested a $30 billion tax cut. Until it can be enacted, he proposed suspending or postponing the Social Security tax increase.