President Reagan, in his first session with Republican congressional leaders since the Nov. 2 midterm election, was told bluntly yesterday that he lacks the votes to advance next July's scheduled income tax cut to Jan. 1 as a means of stimulating the economy.
House Minority Leader Robert Michel (R-Ill.) and Senate Majority Leader Howard H. Baker Jr. (R-Tenn.) delivered that assessment in an Oval Office meeting one day after Reagan said he found "appealing" the idea of accelerating the final installments of his three-year across-the-board cuts in individual income tax rates.
"Well, I just said we don't have the votes," Michel told reporters after the meeting with Reagan. "It would obviously have an adverse impact on the size of the deficit," he said, and if because of that it also drove up interest rates, "then I would have some serious reservations about it."
"I told him it was going to be a difficult thing to do in the lame-duck session. Now, if you're going to make it effective on Jan. 1, you have to do it in the lame-duck session" of Congress scheduled to begin Nov. 29, Michel added.
Baker described the proposal as "sort of a Hobson's choice." His reason, too, was that while it might spur economic growth it might also drive up interest rates.
In addition, Baker indicated sympathy for proposals to press the Federal Reserve Board to reduce interest rates.
The two Republican leaders told the president he will have trouble sustaining his proposed defense buildup and holding down the budget deficit almost entirely by domestic spending cuts, as he has indicated he wants to do.
The tax proposal, which Reagan is considering as part of the 1984 budget he will send to Congress in January, ran into bipartisan skepticism elsewhere as well yesterday.
House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) is "basically" against the idea, an aide said, noting that Democrats have talked instead about eliminating or modifying the third installment of the three-year, 25 percent tax cut. Senate Finance Committee Chairman Robert J. Dole (R-Kan.) said "there may be better ways to stimulate the economy" than speeding up the tax cut "in view of the deficit projections we are now facing." Senate Budget Committee Chairman Pete Domenici (R-N.M.) said he had an "open mind" on the idea but was opposed if it is Reagan's "singular" approach to stimulating the economy.
"Frankly I don't think it would be very easy to accomplish," Domenici said. "It would be most difficult to get through without many other things being adjusted."
Sen. Ernest F. Hollings (S.C.), ranking Democrat on the Budget Committee, said the tax cut acceleration idea is "a shift from staying the course to spiking the punch. It could leave the economy with an even bigger hangover just when we really need to straighten up."
Asked yesterday as he sat down with Baker and Michel whether he thought advancing the tax cut was a good idea, Reagan said, "That's why I'm talking to people like this, to find out if it's a good idea."
The two GOP leaders apparently brought Reagan a raft of unsettling news about the prospects for his planned defense buildup, for jobs legislation and for his anticipated new cuts in non-defense spending in the fiscal 1984 budget. The president said in a New Orleans speech Tuesday that non-defense outlays would have to carry the burden of cuts to bring down deficits next year.
Baker told reporters, "I'm not convinced there's much more you can get" out of non-defense spending. "We've wrung a lot out of the non-defense side. Now we're going to have to take a look at the defense side."
Massive curtailments of military spending were unlikely, Baker said, but he added that Congress would want to take advantage of the so-called "deflation dividend," in which defense outlays can be reduced somewhat without slowing the real growth rate because inflation has subsided since last year.
Baker said he talked "at some length" with the president about the proposal he is considering from Transportation Secretary Drew Lewis for a 5-cent-a-gallon increase in the federal gasoline tax to finance a rebuilding of roads and bridges. Baker said he intends to go further.
"I'm going to talk to the speaker and we're going to gin up a jobs bill" in the lame-duck session, Baker said. Reagan has maintained that the Lewis gas-tax proposal is primarily designed to fix roads and bridges, although it would incidentally create an estimated 320,000 jobs. There are currently about 11.6 million Americans out of work, but the president has rejected any public works jobs effort to alleviate the nation's 10.4 percent jobless rate.
A Republican leadership source said yesterday that Baker, in his meeting with the president, underscored congressional impatience with the Federal Reserve Board's handling of monetary policy. The source said Baker is "dead serious" about wanting interest rates to come down still further next year; otherwise, legislation to rein in the central bank's independence is likely.
"I think interest rates rather than tax policy are the first thing we must address," Baker said, adding that he plans to discuss monetary policy with Fed Chairman Paul A. Volcker.
After the meeting, White House spokesman Larry Speakes sought to minimize any discord between the congressional leaders and Reagan. He quoted the president as saying he looks forward to a "good spirit of cooperation" with Congress in the coming session and next year.
Speakes listed as administration priorities the Clean Air Act, Reagan's Caribbean Basin Initiative, nuclear waste, regulatory reform, Radio Marti, bankruptcy judges, enterprise zones and maritime reform. Baker, however, said he expected less out of the session, viewed as lasting about three weeks.