President Reagan, seeking some new way to stimulate the economy, said yesterday he is considering asking Congress to increase next year's cut in individual income tax rates from 10 to 15 percent and move up the corresponding cut in withholding rates from July 1 to Jan. 1.
"We are thinking about it," Reagan said. "We would hope it would further stimulate the economy. That's what's so appealing about it. But no decision has been made."
Treasury Secretary Donald T. Regan recommended the shift to greater stimulus about 10 days ago. It would cost the Treasury almost an extra $15 billion in the first half of 1983; in effect, the third year of Reagan's three-year 25 percent tax cut enacted last year would take effect a year earlier than planned.
With unemployment continuing to rise -- it hit 10.4 percent last month -- the administration has been looking at a number of policy alternatives since the Nov. 2 election, in part to head off proposals from both parties in Congress for new public works and other spending programs the president opposes.
The tax cut is appealing in part because it would be a one-time-only stimulus for the economy, but not all the president's advisers favor it.
Martin Feldstein, chairman of the Council of Economic Advisers, declined to say at a news conference yesterday whether he is in favor or opposed, but in listing pros and cons seemed to be against it, primarily because it would increase the 1983 deficit and probably boost interest rates.
Budget director David A. Stockman also "has reservations" about the plan but "is not leading a charge against it," administration officials said.
White House chief of staff James A. Baker III said the president is "seriously considering" asking for the tax change.
Presidential counselor Edwin Meese III noted "there are some good reasons for it and also some good reasons against. The question is how much stimulus at a certain time. The other aspect is what would it do to the deficit by lowering receipts."
On Capitol Hill a few congressmen have advocated moving up the tax cut, but most members, including the chairmen of the budget and tax committees in both House and Senate, have been talking about raising taxes, not lowering them, in order to reduce prospective budget deficits.
The administration is also considering such a tax increase of a nickel a gallon on gasoline, with the revenues to go to a job-producing highway repair program.
The administration estimates the 1983 deficit will be more than $150 billion. Other estimates from private economists and congressional budget experts range up to more than $175 billion.
Treasury officials said Regan advanced his plan in hopes it would help the economy turn the corner from recession to recovery, promoting more economic growth that would in turn reduce future budget deficits.
Feldstein said advancing the tax cut "would add a little bit of stimulus to the economy [by] putting about $14 billion in the hands of taxpayers over the year" without cutting tax rates over the longer term.
But the CEA chairman cautioned that the increase in the gross national product would be "substantially less" than the size of the tax cut.
Moreover, he added, an increase in the tax cut would make the budget deficit larger with consumer spending going up while business investment went down.
Technically, personal income tax rates -- except the top rate of 50 percent -- will fall by 10 percent on Jan. 1 and by another 5 percent on Jan. 1, 1984. About half of the 10 percent cut has already been reflected in employes' take-home pay as a result of a change in withholding tables effective last July. A further 10 percent cut in withholding now set for next July would cover the remainder of the reduction in 1983 tax liabilities and the final 1984 cuts in rates as well.
Some private economists, such as George Perry of the Brookings Institution, think speeding up the tax cut would give the economy a needed boost in the short run. "The only problem is that it is small," Perry said.
However, because the budget deficits are likely to persist even after an economic recovery is well under way, Perry said he would couple advancing the tax cut with elimination of a provision in the 1981 tax bill indexing personal income taxes to offset inflation beginning in 1985.
"This would give you the maximum benefit when you want it and you improve all future deficits. Congress could bludgeon the administration into accepting elimination of indexing as part of the package," Perry argued.
Some other economists were not so sanguine. One congressional economist said it is unlikely the administration could persuade Congress to vote on the speed-up without also allowing a vote on a Democratic proposal to cap the 1983 cut at $700 per household, which the Democrats see as a way of reducing the deficit without penalizing lower- and middle-income taxpayers.
Further, the economist said, it would be hard for the administration to convince members to make cuts in 1983 appropriations bills when also pushing for an action on taxes that would increase the deficit.
Economist Allen Sinai of Data Resources, Inc., said moving up the tax cut would be a "very serious mistake. It would create problems for the financial markets and it would create problems for the Federal Reserve."
"We would be much better off letting lower interest rates get the recovery going," Sinai continued. "We need a tighter fiscal policy and a looser monetary policy." Anything that increases the deficit would make it more difficult for the Fed to keep interest rates moving downward, he said.
Feldstein also warned that prospective deficits are so large that they will keep interest rates high relative to inflation during the next year. Actual rates may come down as investors lower their expectations for future inflation. But so-called "real" interest rates, already historically very high, likely will be even higher a year from now, he said.
The CEA chairman said he remains confident that the economy will grow steadily at about a 4 percent rate, adjusted for inflation, once a recovery starts. "It's very, very hard to say exactly when the recovery will begin," he said, adding that there are "clear signs" one is on the way.