Bolstered by the Treasury as well as by budget director David stockman, President Reagan is inclined against diluting his tax package in order to round up enough conservative Democratic congressmen for a winning coalition in the House.
The decision must be made quickly because back-room maneuvers are beginning on the pivotal tax question. One option presented to the president would satisfy the "boll weevils" or "Redneck Caucus" -- the conservative southern Democrats -- and appease the bond market by delaying individual tax rate cuts until Jan. 1, 1982. But the odds are against Reagan's taking that way out, in the opinion of well-placed administration officials.
There is plenty of room for compromise between what the boll weevils want and Reagan's Kemp-Roth bill. That ushers in intriguing negotiations that not only will determine the thrust of economic plicy for the next two years but also will redefine power relationships inside the House.
Actually, Reagan's tax proposal for annual, across-the-board, 10 percent rate cuts for three years starting July 1, 1981, never had a chance. It is so nearly a replica of the partisan Republican Kemp-Roth bill that not even the boll weevils will vote for it. Indeed, House Democratic leaders drool at the prospect of bringing it to a vote for the psychic and political joy of beating Reagan.
Reagan can escape this predicament in the Democratic-controlled House by making a deal with the Conservative Democratic FORUM (CDF) -- the "Redneck Caucus." But Rep. Kent Hance of Texas, a CDF member of the House Ways and Means Committee who has been talking secretly to the Treasury, is insisting on no tax rate cuts at all in 1981 and only a 4 percent cut in 1982 (to be followed by 10 percent in 1983 and again in 1984). Thanks to inflationary bracket creep, that means significantly higher tax rates through the 1982 election.
This would reduce Reagan's estimated budget deficit for the next fiscal year by some $30 billion. The immediate tax cuts would be slashed in "unearned" (dividends and interest) income that show little revenue loss.
Some boll weevils also eye long-range ideological goals. Rep. Phil Gramm of Texas, perhaps the CDFs most conservative member, sees vast political-economic rewards in "back-loaded" tax cuts -- cuts that go deeper in future years. Like back-loaded spending programs enacted in the Lyndon Johnson era, they constitute a Fabian strategy of social revolution.
The CDF alternative entices senior Reaganites, but -- contrary to fears of edgy Treasury officials -- not Stockman. As budget director, Stockman naturally is interested in any deficit-reducing scheme. But as a supply-sider and Republican politician, he sees dangers in what Hance and Gramm propose.
The CDF alternative would permit only a 5 percent cut before the 1982 election. That 5 percent compares with Reagan's campaign pledge of 20 percent and his actual proposal of 15 percent. While the CDF alternative would please the bond traders, it would do nothing for the blue-collar working man. That is not what Jack Kemp, David Stockman or Ronald Reagan intends.
Politics aside, the CDF alternative flunks the test for supply-side tax cuts as set by founders of the supply-side movement. The heart of their ideology is reduction of marginal tax rates as an incentive to productivity. The supply-siders want a "front-loaded" tax cut -- as much rate reduction as quickly as possible -- for economic as well as political reasons.
Any number of compromises is possible -- say, 7.5 percent rate cut a year beginning Oct. 1, 1981. But the danger for the White House, if Reagan and the boll weevils cannot agree, is an all-Democratic coalition. Hance is under intense pressure from the Democratic leadership not to deal with the White House, and will confer this week with the Ways and Means chairman, Rep. Dan Rostenkowski.
It is not Rostenkowski, however, but one of his committee members -- Rep. James R. Jones -- who looms as the principal Democratic actor. Jones, regarded as a moderate conservative until this year, is licking his wounds from the budget fight and ready to challenge Reagan again. He is working closely with Ways and Means liberals on a bill that would be tilted toward investors and would not cut individual taxes until Jan. 1, 1983 -- a beautiful bill in the eyes of the bond boys, the boll weevils and maybe a good many Republican congressmen as well.
The easy way for Reagan to avert a Jones-led Democratic triumph is to buy the CDF alternative. But in so doing, he would be following the same path of pain traveled by Herbert Hoover and Jimmy Carter -- seeking vainly to cut budget deficits by increasing taxes. The odds today are that Reagan will resist this and, as the great communicator, take on the bond traders, the boll weevils and some of his own Republicans to persuade them that it is the road to ruin.