Sen. Robert Dole's proposal to implement income tax indexing in 1983 will not "undercut attempts to restrain inflation," as The Post suggested in its March 2 editorial ("How Not to Balance the Budget"). The editorial resurrects the same worn-out arguments that were dismissed last summer when Congress enacted indexing into law, effective in 1985.
If indexing were enacted on July 1, 1983, as a substitute for the third increment of the administration's tax cut, as Dole suggests, federal revenue would increase by an estimated $4.2 billion in fiscal 1983, $12.7 billion in 1984, and $12.3 billion in 1985. This substitution would reduce the size of our deficit, while at the same time requiring a more honest and open approach to congressional budgeting. With indexing, Congress would have to vote publicly to raise taxes to finance government spending. It could no longer rely on an inflationary bonus to the Treasury paid by taxpayers who are forced into higher brackets.
The Post perpetuates the misconception that indexing reduces tax revenue. This is not the case. Even with indexing in place, income tax revenue will increase to reflect inflation and real growth. Just as entitlements and spending programs rise with the rate of inflation, tax revenues will also increase.
Indexing will not dampen the government's incentive to reduce inflation as some critics charge. On the contrary, legislators will lose the revenue cushion that makes it effortless to allow spending to expand. In light of growing popular concern over rising deficits, Congress would be forced to either reign in spending or enact above-board, honest tax increases.
Finally, The Post argues that the consumer price index, to which the indexation of tax rates is tied, is inaccurate and overstates inflation. In response to my concern and the concern of others in Congress, the Bureau of Labor Statistics will change the CPI's housing component to a rental equivalent. This change will eliminate over two-thirds of the bias in the CPI. Further changes that I have proposed--which the BLS is working on-- will reduce the bias even further. It is largely the prospect of an indexed tax system that has brought about these changes, which should save billions of dollars over the spectrum of entitlement programs currently indexed to the CPI.
Tax indexing has the strong support of both the House and the Senate, which enacted it after thoughtful deliberations. My indexing bill had 226 cosponsors, including Democrats and Republicans, conservatives and liberals. Accelerating the implementation of indexing from 1985 to 1983 in lieu of the last segment of the president's tax cut would maintain the philosophy of the Economic Recovery Program, preserve the progressivity of the tax system and significantly reduce revenue losses. What is often forgotten about indexing is that those in the middle and lower brackets benefit the most. The personal exemptions and "zero bracket amount" would move up with the CPI. Those in the top brackets gain the least from indexing; there is no higher bracket their income can be forced into. Eliminating indexing is merely a disguised way to raise revenue from those in the lower and middle brackets.
While The Post believes this is "not how to balance the budget," when the facts are examined, this proposal emerges as a constructive step toward deficit reduction.