Escalating his efforts to keep House Democrats from rewriting his tax cut bill, President Reagan threatened yesterday to veto if it is tilted to favor the poor over the rich or loaded with special tax benefits.
The veto threat came as it was learned that there is still another $3.5 billion hole in Reagan's budget projections, this one on the revenue side, that will force even more spending cuts than planned or higher taxes if the target of a balanced budget in 1984 is to be met.
Reagan's projection assumes current laws will continue. Under current law there will be no tax exclusion for income from dividends and interest after December 1982, when the current $400 exclusion per couple will lapse. But this is not what the administration intends, and was a mistake; elimination of the exclusion would be unpopular with Congress and would run counter to the general philosophy of Reagan's tax policy.
The president raised the possibility of a veto in a White House meeting with Rep. Henson Moore (La.), one of the Republican members of the Ways and Means Committee who supports Reagan's proposed 10 percent tax cut in each of the next three years.
The president is "adamant to keep it a clean bill," Moore said after the meeting.
Reagan's veto threat is likely to please conservatives who want to force the issue on the 10 percent tax cut, but unlikely to cow the Ways and Means Democrats led by Chairman Dan Rostenkowski (D-Ill.).
Moore's meeting with Reagan came about because the Louisiana congressman told a White House aide Thursday of his fear that the 10 percent per year cut was in serious trouble in the committee. Moore told the aide that he didn't see any Democratic votes for the proposal in the panel, and urged that the administration come up with a fallback position.
A few hours later, Moore got a call from the White House inviting him to tell Reagan directly of his concern, and aide to Moore said.
Moore said he told the president that Democrats are contemplating adding tax reductions of other kinds to the bill and reducing the cuts for well-off taxpayers in order to give greater relief to poor taxpayers.
"That's not what I want. That's inflationary. I'll just have to consider vetoing the bill if they do that," Moore quoted Reagan as saying.
Reagan threatened a tax veto shortly before meeting with his Cabinet to discuss the $10 billion to $13 billion in additional spending cuts for fiscal 1982 that he has promised to send to Congress on his March 10 budget message.
Budget Director David A. Stockman told reporters, "We have reviewed every agency from the Veterans Administration to NASA, and there will be cuts across the entire spectrum." Reagan left $6.7 billion of spending reductions unspecified in his Feb. 18 economic message; he said that amount was what he still needed to his his budget targets. Then this week aides discovered they had made a mistake and that he would need an additional $3 billion to $6 billion.
After the meeting, White House press secretary James S. Brady said several hundred programs were discussed and almost all the needed savings had been found. Stockman told reporters, "We're back on track."
Reagan's assumption that there will be no exclusion of income from dividends and interest was made because his revenue estimates are made on the basis of current law. Last year, Congress raised the exclusion to $400 per couple for 1981 and 1982.
Thus, his estimates are built, unintentionally, on a new tax penalty against those with dividends and interest, the kind of taxpayers whose taxes Reagan wants to cut so that there will be more money available for savings and investment. Currently, that exclusion is calculated to be worth $3.2 billion annually for taxpayers. In his economic message of Feb. 18, Reagan forecast a budget surplus of half a billion dollars in 1984.
The National Science Foundation, the science agency hardest hit in the first round of spending cuts, is losing another 7 percent of its budget, including its programs for science education, in the second round, according to government sources.
The president of the American Association for the Advancement of Science sent a telegram to Reagan and Stockman Thursday protesting the cuts. D. Allan Bromley, whose group represents 286 organizations in the United States, said:
"To expect scientific and technological progress while abandoning efforts at improving science and engineering teaching in our schools is illogical . . . the United States already lags dramatically behind the Soviet Union, the Eastern bloc, Japan and Germany in science and mathematics education."
The budget cuts will leave the foundation with no money for science education after 1982.
In addition, it was learned that the Labor Department has told all its regional administrators to freeze all Comprehensive Employment and Training Act programs as of March 2. This has stirred protests that the department is acting before Congress has resolved what parts of the CETA program are to be eliminated or reduced. Reagan wants to cut it heavily.
One of the new spending cuts will be realized by shifting the balance between new and existing housing in the so-called Section 8 housing program for the poor. Housing and Urban Development Secretary Samuel Pierce said that the mix would be changed from 50-50 to 55 percent existing and 45 percent new. Existing housing is cheaper
The budget-cutters were also known to be discussing further cuts in the basic AFDC welfare program and raising the reduction in the programs being incorporated in the health services bloc grant from the 25 percent announced Feb. 18.
All cuts are deemed essential to keep the economy on target toward the $695.5 billion budget and $45 billion deficit Reagan aims at for fiscal 1982.