THE WHITE HOUSE is said to be thinking, gloomily, about the possibility of a tax increase or, as the current phrase has it, a revenue enhancement. But there's a better way out. How about a revenue reconsideration?
The administration's tax bill, enacted last August, set up successive layers of many kinds of tax cuts staged over the next four years. To renounce that much revenue that far into the future was an extraordinarily rash thing to do. The cuts beyond this year need to be reconsidered, and reversed.
The next round of cuts, dropping the personal income tax rates, will take effect in July. They are best left untouched, for they can help to pull the economy out of the present recession. But the case for the further round scheduled for July 1983 is pretty dubious. It is impossible to know what the state of the economy will be 17 months from now, and whether further tax-cutting would do more harm than good.
Worse, the new law would begin to index the income tax brackets in 1985--which means that the brackets would all move up with the consumer price index every year. Congress intended only to make the rate neutral in regard to inflation, and end the process by which inflation pushes people into successively higher rates. Unfortunately, as the government has learned to its sorrow over the past several years, the CPI is a far-from-perfect measure of inflation. If the CPI were to overstate inflation by large margins, as it did in 1979 and 1980, the effect would be to produce, automatically, large tax cuts without regard for the economy, the inflation rate or the budget.
When Congress wrote last year's tax bill, it showed great deference to Mr. Reagan's hopes for a balanced budget in 1984. The authors of the legislation tactfully scheduled the heaviest cuts for the years 1985 and 1986. The tax reductions for business so far are only the merest beginning of all that this legislation contains. It's in those last two years that the benefits really balloon.
This year's cuts, for both business and personal taxpayers, are on a reasonable scale and will serve the useful purpose of strengthening an economy in trouble. But the dangerously large cuts for the years beyond inspire fears of huge and unmanageable budget deficits reaching as far ahead as anyone can see. It's the shadow of those future deficits that is pushing interest rates up now. Rather than fiddling desperately with nuisance taxes, Congress would do better to acknowledge a mistake, repeal the later stages of the 1981 tax bill and leave future tax rates to future Congresses.