Under the budget that President Carter sent to Congress yesterday, federal taxes would jump $104 billion next year to reach 22.1 percent of the gross national product, their highest in history.
It is this tax increase that enables Carter to achieve his otherwise conflicting budget objectives: raise defense spending yet lower the federal deficit, while not cutting domestic outlays appreciably.
Individuals rather than business would bear the brunt of the increase, which would occur despite a proposed tax "cut" for 1982. The heralded cut would be much more than offset by inflation and other proposed tax increases.
Three-fourths of the projected increase in revenues is a product of inflation. But there is also a real tax addition of almost $25 billion between fiscal 1981 and 1982. Already this fiscal year the real tax burden is scheduled to rise by more than $30 billion; that is why federal taxes as set forth by Carter would take an even bigger share of GNP in 1982 than in the war years of 1944 and 1945.
The Carter taxes are expected to be a main point of controversy when President-elect Ronald Reagan moves to rewrite the budget upon taking office. In the campaign, Reagan promised much larger cuts in taxes to stimulate economic growth, but lately some of his advisers have winced at the effect these would have on the deficit.
Among the proposed Carter tax increases in 1982 (the largest two of which Reagan is almost certain to reverse) are:
An $11.1 billion increase in the federal gasoline tax, adding 10 cents a gallon. This would raise a total of $14.6 billion in fiscal 1982. Congress has quickly defeated gasoline tax increases when proposed before as means to discourage energy consumption.
Automatic withholding of income tax on interest and dividends, estimated to raise $3.9 billion in 1982. This, too, has been beaten in Congress before, in part because of resistance by banks.
Outlawing so-called commodity straddles, tax-avoidance devices which the Internal Revenue Service is now challenging in court. This would raise $1.3 billion in 1982.
Reinstating the ticket tax, and increasing other taxes on airports and airways, raising $1.4 billion in 1982.
Under legislation from past years, the Social Security tax and "windfall profits" tax on oil would also rise.
Altogether the budget increase proposes legislated tax increases of $23.6 billion for 1982. These are only partially offset by the tax breaks contemplated under the "economic revitalization program" Carter unveiled last August, leaving a net tax increase of $5.3 billion in 1982 from proposed legislation.
As expected, Carter has delayed part of his revitalization program so that the personal tax "cuts" would not take effect until January 1982. Under the program, taxes would be cut by an estimated $18.3 billion in fiscal 1982, which ends Sept. 30, 1982, with business getting more than half of the benefit.
Yesterday's budget shows just how hard it will be for the incoming administration to meet its promise of lower taxes. Reagan is committed to large tax cuts aimed at loweering the tax burden. But on Carter's figures the tax burden rises steadily from 20.3 percent of GNP last year to 21.4 percent this year, 22.1 percent in 1982, and 22.8 percent by 1984. An early reversal in the trend would require deep cuts in nondefense spending or a much bigger budget deficit than Carter has projected.
Reagan is expected to propose a 10 percent cut in personal tax rates for each of the coming three years, coupled with more generous depreciation allowances for business, in the early weeks of his administration. Such proposals would not cost very much in the current fiscal year, especially if, as seems likely, few of the cuts are made retroactive to Jan. 1.
But by 1982, their cost would be substantial. The income tax cuts alone would cost about $49 billion, according to recent congressional estimates, if the first 10 percent rate cut takes effect on July 1 this year, with the second cut effective January 1982. The business and other cuts that are likely to make up the rest of the bill -- such as a cut in the capital gains tax and increased tax exemptions for savings -- could add a further $15 billion to $20 billion.
If Reagan wins congressional approval for tax cuts of this size, and scraps the Carter proposals for tax increases, he will have to find an extra $70 billion to $75 billion in 1982 to keep to Carter's proposed $27.5 billion deficit. With no extra spending cuts the deficit would rise to close to $100 billion. Even so, taxes would go up in 1982 because of past legislation and inflation.
The already enacted "windfall profits" tax will push up taxes by a net $7.4 billion between 1981 and 1982, while legislated, and inflation-induced, rises in Social Security taxes will net almost $30 billion.
Income taxes will also go up because of inflation, which raises them in two ways. It raises the nominal tax take as nominal incomes rise with inflation, and it also increases the average tax bite as workers are lifted into higher tax brackets when their earnings rise. The latter effect is estimated by the Treasury to add $14.7 billion to 1982 taxes.
Individual income taxes are projected to rise by $47.7 billion to $331.7 billion next year, while corporate income taxes actually drop by $1.4 billion. Yesterday's budget projetions show individual income taxes climbing by 16.6 percent a year on average between 1980 and 1984, while business income taxes rise only about half as fast.
This reflects both the mere generous treatment of businesses in Carter's economic revitalization plan, and the more severe effect that inflation has on personal income taxes. It is also partly due to the offset on income tax which oil companies can claim after paying the "windfall profits" tax, which is levied on the extra money they are making as federal price controls are removed from oil.
The gross receipts of the oil profits tax are estimated at $34.7 billion in 1982, up from $22.2 billion this year. But the income tax credit cuts the net revenue gain to $13.5 billion this year, rising to $20.9 billion next year, and $22.1 billion in 1984.
This is largely responsible for a switch in the tax take from total income taxes -- on both business and individuals -- to excise taxes. The latter are planned to jump by more than 50 percent to $69.6 billion in 1982. Of the $25.2 billion rise, $11.1 billion comes from the proposed motor fuels tax and $12.5 billion from the oil profits tax. These tax rises would be likely to hit individuals sooner or later by pushing up prices.