CONGRESS AND President Reagan made a substantial beginning, with the two bills passed last week, in the job of squeezing down the deficit. But there's still a long way to go. Further tax increases are going to be necessary, and it's worth considering the general shape that the future American tax system ought to take.
A few numbers are useful here, to suggest the magnitude of what's been done and what's still to do. The beginning point is an estimate of the federal deficit that would have occurred if last week's legislation had failed. For the fiscal year 1983, which begins on Oct. 1, it would have been in the neighborhood of $180 billion. That estimate has been moving upward all year because the recession has been more severe, and lasted longer, than most people, ourselves included, expected.
The new tax bill that Congress passed last Thursday will increase revenues about $18 billion in fiscal 1983. But it also contains spending cuts amounting to $3.6 billion that year. They are mostly in Medicare, incidentally, and fall primarily on doctors' fees rather than on the coverage of elderly patients. The bill further included about $1 billion in increased unemployment benefits. But last week, Congress also passed, separately, the legislation that reconciles some of the big benefit programs to its spending targets. The reconciliation bill will cut another $3.3 billion, most of it in agricultural programs and federal pensions. When you add all of it together, it comes to $24 billion in deficit reductions. Against the original estimate of $180 billion, it suggests that the legislation has brought the probable estimate for next year down to roughly $156 billion.
But there's more. Other things are happening, outside Congress, that will help. The recent drop in interest rates saves the government money. If the rates were to stay at their present levels through the coming year, that would lower the direct interest cost to the government by another $15 billion or more. Beyond that, the low rates would certainly encourage economic growth. The size of the deficit ultimately depends on all of the uncertainties of recession and growth. That's why you need to regard all of these numbers as illustrative, rather than precise forecasts.
But they make three points worth noting. Number one, a large part of the present deficit is the result of the recession; resumed growth will help bring the deficit down. But, number two, even with growth, further legislation will be necessary. Number three, while last week's two bills both raised taxes and cut spending, the tax increase was three times as great as all the spending cuts together. Both the White House and Congress are finding it harder and harder to locate tolerable cuts in spending. To keep closing the deficit, they are going to have to rely mainly on taxation.
What form should future tax bills take? Since Mr. Reagan took office, the income tax has become somewhat less progressive. The balance has been shifted slightly from income taxes to consumption taxes. The question, not only for tax specialists but for voters, is whether to pursue this trend farther-- and how far.