Listening to standard administration prose, you could get the idea that the fight for budget control was being waged between a stalwart president and a recalcitrant Congress--Messrs. Reagan and O'Neill in hand-to-hand combat. In fact, neither man has had much to do with the package of budget cuts and tax increases now taking shape in Congress. Instead, the moving force has been a handful of Republican leaders in the Senate who, with only the vague blessing of White House, are hammering out the details of what to cut from the budget and how to pay for what is left.
In recent days, the action has been directed by Sen. Robert Dole, whose Finance Committee has now voted changes in the tax code that would raise $21 billion in additional taxes next year. Normally, the House Ways and Means Committee would take the lead on a revenue measure, but House Democrats were glad to let Senate Republicans get out in front in the unpleasant business of raising taxes. You haven't seen the administration fighting to get into the act. Treasury staffers have been giving advice to the Finance Committee on technical details and estimates, but the administration has apparently decided to let Sen. Dole test the waters before it decides to jump in behind him.
Exposed to the merciless pressure of the tax loophole lobbies, the Finance Committee nonetheless put together a brave set of tax reform measures. It shied away from some tough decisions--no new tax on energy was voted--and caved in to pressure on others--the low-rate capital gains tax would be extended to assets held for only a few months. But the number of redoubtable lobbies that the committee faced down is remarkable.
Perhaps the most important reform was the committee's decision to reduce the too generous business tax breaks voted last year. When these breaks are fully in effect in 1986, the combined value of investment tax credits and accelerated cost recovery deductions will excuse many companies from tax liability altogether and also provide incentives for companies to make investments that don't make good economic sense. The committee would also curb--and ultimately eliminate--selling of unneeded tax breaks by companies with no taxable profit to other companies wanting to reduce their tax bills.
Other interests nicked by the committee bill include defense contractors, insurance companies, tobacco producers, private aircraft owners and wealthy individuals and corporations that now pay little or no taxes. Tax-subsidized pensions for highly paid corporate executives would be curtailed as would the free and easy use of tax-exempt municipal bonds for commercial purposes. Over the protests of banks, savings institutions and brokerages, the committee even voted to crack down on tax cheats who fail to report billions of dollars in interest and dividends each year.
Whether the Finance Committee's proposals sink or float will depend upon the willingness of President Reagan to give the committee firm and unequivocal support. If that's not forthcoming, you can scratch any real progress toward tax reform from the agenda for the foreseeable future--and add at least $20 billion to your estimate of next year's budget deficit. The Finance Committee has taken large steps toward making the tax code simpler and fairer, but in doing so, it offends strong and vocal interests. The committee needs--and deserves--the full support of the administration, Congress and the public.