These days, pending President Reagan's complete recovery (which is taking more time than hoped) and resumption more fully of the crucial lead role in the battle for his program, the sales burden falls on three key advisers -- Treasury Secretary Donald Regan, Budget Director David Stockman, and Economic Council Chairman Murray L. Weidenbaum.
They are putting up a bold front. First, they are seeking ways of deflecting the fears of right-wing Senate Republicans that Reagan won't achieve a balanced budget by fiscal 1984. And they continue to insist that only the costly three-year Kemp-Roth tax cut will do. cVice President Bush dutifully put out the story that President Reagan may well veto anything else -- there will be no compromise.
It is not surprising that the White House is marketing this pitch. But because the Kemp-Roth tax cuts are blocking the possibility of an early budget balance, it will be surprising if there is not a compromise on the tax bill in the end. "We're not ready to discuss compromise -- yet," White House press aide Larry Speakes told reporters this week.
Already, as Weidenbaum says, the president has won the first and probably the most important battle -- acceptance of the radical idea that there should be simultaneous approval of a major tax cut and major spending cuts. "Even Jimmy Jones [the Democratic chairman of the House Budget Committee] doesn't argue with that," Weidenbaum crows.
Now, there is the second battle -- over the composition of the budget and tax cuts. Weidenbaum assumes, correctly, that most of the budget reduction program will get through Congress. "And we've never pretended that anything is set in concrete or that a tax bill won't bear some congressional imprint," he remarked in a telephone conversation. Thus, the way Weidenbaum sees it, even if there's some compromise on taxes, the president "has got three-quarters of a loaf."
The big problem for the president's tax program is that is has successfully been attacked as unfair and highly inflationary to boot. Defenders of Kemp-Roth are doing their best to deflect these judgments. For example, conservative economist John Rutledge, a consultant to the Office of Management and Budget, argues that the Reagan-Kemp-Roth tax cut is actually deflationary. He contends that Reagan's proposed reduction in tax rates looks big only against "the enormous tax increase which had been programmed into the Carter budget."
It is an interesting and highly revealing approach. Kemp-Roth is not a 30 percent cut in the tax liability of most individuals. Because inflation pushes them into higher brackets, and because Social Security taxes are zooming, most taxpayers will wind up paying higher total taxes (with the most regressive effects at the lowest end of the income scale.)
In other words, the Kemp-Roth bill is not a true tax-cutting program at all, but rather a tax shift that will produce increases for most taxpayers. The rich, upper 5 percent bracket taxpayers, on the other hand, will do exceedingly well.
But while the Kemp-Roth effect is largely a "switch" rather than a "cut" for most people, its gross budgetary effect would still be a revenue loss of $150 billion over the three-year period, leaving the nation with staggering deficits. These deficits will be no more nor less inflationary than would have been Democratic-generated deficits of the same magnitude.
This week's Commerce Department report that the nation's economy grew at a surprisingly brisk 6.5 percent annual rate in the first quarter bolsters the case of those who warn that Kemp-Roth may provide too much stimulus. It was almost funny to observe both Weidenbaum and Commerce Secretary Malcolm Baldrige hustle out with statements on the first quarter's good news, assuring the public not to worry -- some bad news would be along soon. Maybe so. But the economy at this point doesn't resemble the "Dunkirk" that Dave Stockman was touting a few months ago as the justification for Reagan's radical program.
Thus, at this stage of the political chess game on Capitol Hill, tax alternatives such as the one-year bill proposed by Rep. Dan Rostenkowski (D-Ill.) look like the basis for a compromise. Like Kemp-Roth, Rostenkowski's bill would give upper-bracket earners a big, quick cut in the top tax rate on unearned income, from 70 to 50 percent -- moreover, all at once instead of over three years.But it also does more to compensate low- and middle-income groups for the ravages of Social Security tax hikes and bracket creep. Moreover, it provides relief for those hit by the "marriage penalty."
As Brookings Institution tax expert Joseph A. Pechman observes, the one-year limit of the Rostenkowski bill makes it more palatable than the three-year commitment of the Kemp-Roth proposal. But Pechman also warns: "Neither Rostenkowski's bill nor Kemp-Roth will revitalize the economy. There are fundamental problems in the economy more significant than taxes."