The chairman of the House Budget Committee, Rep. James R. Jones (D-Okla.), yesterday proposed a much smaller tax cut this year than that favored by President Reagan. His proposal would reduce the maneuvering room of House Democrats in drafting a tax bill; they would have less money to spread among the year's major claimants for tax relief.
Jones, in his suggested starting point for his committee's deliberations, allowed for a net tax cut of just over $30 billion in the fiscal year beginning in October, compared with $50.4 billion recommended by the Ways and Means Committee last month and a $51.4 billion slash proposed by President Reagan.
Even Reagan's proposed tax cuts would not be enough to offset next year's scheduled increases in Social Security taxes, plus the effect of inflation in pushing into higher income tax brackets. With the smaller Democratic "cuts," the tax increase next year would be even greater. Under the generous economic assumptions used by Jones, federal tax revenues after the tax cut would rise more than $80 billion next year.
The Budget Committee does not vote on specific tax proposals, only broad revenue targets. Jones thus did not have to suggest yesterday how the Democrats might say within his proposed tax cut total. But one way would be to put off some of the individual tax cuts Congress votes until next January.
Jones assumed in his proposal that an extra $7.6 billion will be raised in fiscal 1982 through accelerating some tax payments, closing unspecified tax "loopholes" and raising user fees. This would let Congress vote $38 billion in cuts overall.
House Democrats are apparently planning a tax bill which will be very different from the president's three-year across-the-board rate cuts coupled with more generous depreciation allowances for business. They favor more help to the middle- and lower-income brackets and a one-year rather than three-year bill.
Predictably, Treasury Secretary Donald T. Regan attacked Jone's proposals yesterday, saying the tax increases they imply would lead to "a needless sacrifice of the economic growth embodied in the president's program." The administration says tax reduction is the key to the future economic growth it is predicting, and around which its economic program revolves.
The year's actual tax bill will be written by the House Ways and Means Committee. Ways and Means Chairman Dan Rostenkowski (D-Ill.) plans to outline his alternative to Reagan's proposals in a speech in Chicago Thursday. Although he is in bread agreement with the tax cut numbers proposed with the tax cut numbers proposed by Jones yesterday, sources said he will not necessarily stick precisely to them.
Chief among the measures Rostenkowski will probably favor are:
A reduction in the so-called marriage penalty whereby two-income couples pay more if married than they would if single.
Savings incentives, such as increases in the amounts that can be sheltered from tax and put in Individual Retirement Accounts (IRAs).
Rate cuts. Although across-the-board cuts in tax rates such as the Kemp-Roth three-year proposal endorsed by the president are unlikely, some cuts in rates are inevitable, according to Ways and Means sources.
An increase in the earned income tax credit, designed to help the working poor.
More generous depreciation allowances for business.
Other possibilities include an increase in the personal exemption, and the zero bracket amount (equivalent to the old standard deduction). But both of these measures are very costly.
Jones recommended cutting business taxes by $10 billion, and individual tax by $28 billion. A split of about this proportion is backed by many Ways and Means Democrats.