The Reagan administration is considering much larger tax increases than the $22 billion over three years the president proposed last month in order to hold down budget deficits, officials said yesterday.
Lawrence Kudlow, chief economist for the Office of Management and Budget, acknowledged to the Senate Budget Committee that the deficits for the next three years might be much larger than official projections. As a consequence, he said, "The administration is undergoing a thorough review of these revenue strengthening measures" and by the time congressional action is completed these might be expanded to "yield more and possibly a good deal more than we proposed in September."
A sizable tax increase would be a reversal of position for the administration, which just this summer fought a large income tax cut through Congress, a cut it said was essential to the long-term health of the economy.
Kudlow's testimony came as Senate Republican leaders, with a noncomittal nod from Office of Management and Budget Director David A. Stockman, decided to move ahead late this week with appropriations bills that reflect only about half the $10.4 billion worth of 1982 spending cuts that Reagan wants.
But they apparently resolved little else in a series of meetings, including one with House Republican leaders, on an overall strategy for dealing with Reagan's latest budget plan. At least some House GOP leaders reportedly voiced strong misgivings about any further major budget surgery this year.
After a meeting with Senate Appropriations Committee Chairman Mark O. Hatfield (R-Ore.) and appropriations subcommittee chairmen, Stockman said "they're moving in the right direction" to avoid vetoes of money bills by Reagan, although he declined to rule out the possibility that vetoes may be necessary. But Hatfield said later the committee has not budged from its position that it can achieve no more than $5 billion to $6 billion in cuts, about half what Reagan asked.
Stockman said an $80 billion deficit for this year is possible under a "worst-case scenario" if the president's program is not approved.
Sen. Pete V. Domenici (R-N.M.), chairman of the Senate Budget Committee, also said that without further spending cuts or tax increases, the 1982 budget deficit could reach $80 billion. At a hearing, he asked OMB's Kudlow and other administration witnesses if the official estimates for 1983 and 1984 deficits, before counting any spending cuts or tax increases, are not about $12 billion too low.
Kudlow replied, " . . . I agree with your diagnosis in broad terms." Later Kudlow told reporters that Domenici's numbers are "reasonable," and added, "We have an enormous job in front of us."
The OMB economist agreed that the spending cuts the administration has offered may not be large enough to cut the deficits as much as needed. For that reason, he said, "the administration has signaled to Congress its willingness to engage in discussions on the revenue side."
"The deficit is not going to magically evaporate," Kudlow continued. "It behooves us to get moving on these revenue options."
Among those options are a boost in cigarette and alcohol excise taxes and a variety of other ways to increase federal revenues, Treasury Secretary Donald T. Regan said. Regan did not elaborate on the proposals under study, but other officials said they include elimination of personal income tax deductions for interest payments on virtually all credit except home mortgages and auto loans, and limiting exemptions for health insurance premiums.
The major tax proposals under study--if all were proposed by Reagan and approved by Congress-- would increase revenues by more than $10 billion in 1982 and $17 billion by 1984, according to administration estimates.
However, some members of Congress want the administration to back a much larger package of "revenue enhancement" measures--to use the administration's euphemism for tax increases--that over the next three years could provide another $15 billion to $20 billion in receipts.
Both Regan and Kudlow strongly opposed undoing any of the changes in the tax cut bill passed in August. Kudlow also said that since the administration has broadened its search for more revenue, its detailed proposals may not be ready before the end of the month.
Senate and House Republican leaders are to meet again today in hopes of agreeing on strategy, but they reportedly were far from agreement after yesterday's session. A House Republican leadership aide, asked what was causing delay, responded: "Everything."
Meanwhile, Senate GOP leaders planned to move ahead Friday with a schedule of appropriations bills through Nov. 12--leaving the issue of revenue increases and entitlement cuts until the second budget resolution later in the year.
According to one strategy being considered, the budget resolution would establish general targets for cuts in entitlement programs other than Social Security, which would be exempt from this round of cuts, and for new revenue measures. No action on entitlements or revenues would be anticipated until the new year.
While not ruling out possible revenue increases in 1982, House Republicans indicated it may be difficult to pass tax increases in the House during an election year.
House Minority Leader Robert H. Michel (R-Ill.) noted that members are "more inclined to vote for tax reductions than tax increases" in election years.
Said Rep. Jack Kemp (R-N.Y.): "You don't raise taxes in a recession."