Treasury Secretary Donald T. Regan said yesterday that the government's tax take will have to rise to 21 or 22 percent of the gross national product (GNP) by the middle of the decade to shrink projected budget deficits and come closer to paying for federal programs.
Regan's statement amounted to a concession that President Reagan's original goal of reducing the level of federal taxes and spending as a proportion of the total economy would not be met.
In 1980, the federal budget was equivalent to 22.5 percent of GNP and taxes to just over 20 percent.
Reagan's 1983 budget a year ago projected spending at 20.9 percent and taxes at 19.1 percent of GNP by 1985. But spending totaled 24.6 percent of GNP in fiscal 1982.
The administration's failure to bring federal spending down in line with taxes has led to yawning budget deficits that cannot be narrowed by further spending cuts alone, according to officials scrambling to finish work on the fiscal 1984 budget, due to be completed this week.
Regan said he hoped that a growing economy would provide much of the additional revenues. But the administration's present economic forecast does not provide for enough growth to bring revenues up to 21 or 22 percent of GNP by 1986, other sources said.
The president's budget is likely to include a contingency plan for raising $40 billion to $45 billion in additional taxes after 1985--equivalent to 1 percent of GNP--if the budget deficit still exceeds 2 percent of GNP, officials say. With no new spending cuts or tax increases, the administration's present forecast shows the deficit widening to well over $200 billion by 1984 and close to $300 billion by 1988, officials say.
Regan confirmed yesterday that an income tax surcharge is one option under study for such a standby plan on taxes.
Regan said at The Washington Post's annual business outlook luncheon that "while we are bringing outlays down, we have to start bringing revenues up to meet the outlays." Both spending and revenues should move "into that range of 21 to 22 percent of GNP" by 1986, he said, adding that revenues are likely to total $600 billion in the current fiscal year, equivalent to about 18 1/2 percent of GNP.
Regan also called for a monetary policy that is "accommodative to recovery" in order to ensure "an expanding economic base."
The administration has supported the Federal Reserve's goal of a gradual deceleration in money growth in order to curb inflation. Regan said that "as the economy strengthens, money growth should be phased back slowly." Details on Page C1.
The administration is considering new taxes on employer-paid health benefits and in the Social Security area, for fiscal 1984, Regan confirmed. Such measures should raise the revenue share of GNP to 20 percent, Regan said after the lunch.
He said he did not view these measures as tax increases, as the Treasury Department had not designed them for the purpose of raising revenues but for containing health costs or helping to finance Social Security. Using this definition of tax increases, Regan ruled out any administration proposal for new taxes in 1983 or 1984. This would fit in with the president's unwillingness to ask for tax increases in a recession.
Regan said he hoped that economic recovery, which will expand the tax base, will push revenues up to the 21 to 22 percent range by mid-decade and remove the need for any further legislated tax increases. However, if this does not happen, the Treasury has a list of possible new taxes, he said. In addition to the income tax surcharge, the list includes new energy taxes, administration sources said.
The contingency plan would provide for "one or maybe two" types of tax increases rather than a collection of smaller items, an administration source said yesterday. A 10 percent surcharge would raise $40 billion or more in 1986, officials say.
Regan refused to identify the other proposals he had made to the president, saying, "There is a whole list of other things" as well as the surcharge, but "the president has not made any decision at this particular time."
Reagan's budget will almost certainly project a 1986 deficit in excess of the $90 billion or so that would trigger new tax increases under the proposal for standby taxes, officials said yesterday.
In other words, the new spending cuts and revenue increases in the budget would still leave a deficit greater than 2 percent of GNP, based on the administration's forecasts. If these turn out to be too pessimistic, and the deficit is lower than 2 percent, then the additional tax increases would not go into effect.