President Reagan, despite congressional opposition, has definitely decided to propose a "standby" tax increase in his forthcoming budget that would go into effect in later years if deficits don't shrink as a proportion of the national economy, administration officials said yesterday.
The provisional tax increases, which would raise an estimated $40 billion to $50 billion a year, would be triggered in fiscal 1986 should the deficit exceed $100 billion, the officials said.
Reagan is expected to recommend a combination of an income surtax and new energy taxes, but the details are still being worked out. Either way, officials said he plans to emphasize that the tax increases are only a backup that won't be necessary if the economy strengthens and deficits decline in later years.
Meeting with reporters yesterday, the president said he is studying a flat-rate income tax in which deductions would be reduced and rates dropped. He said he is examining it "in connection with what we think is the top priority in taxes in this country . . . to have a tax system that the people can understand." He said he has not made a decision on simplifying the tax code, however.
The president said he is "determined" to keep intact the third, 10 percent installment of his income tax cut due this July, and the scheduled 1985 indexing of tax rates to inflation. Both have been a target of Democrats who would modify or eliminate them to narrow the deficit.
Reagan's approval of the standby tax increase proposal appears to be the last major decision in readying the budget he will submit to Congress Jan. 31. The president is said to have accepted the contingent tax increase with the intention of also telling Congress he doesn't think it will be necessary because the economy will improve enough to bring down budget deficits.
Under the plan Reagan is expected to propose, the tax increases, amounting to about 1 percent of the gross national product in fiscal 1986, would be triggered if the deficit that year is headed for more than 2 percent of GNP. This would be a deficit of about $100 billion.
Administration officials have said they are considering some combination of an oil tax that would increase gasoline prices about 12 cents a gallon, and a 4 or 5 percent income surtax.
The contingent-tax concept already has been criticized by two leading Republican tax-writers in Congress, Senate Finance Committee Chairman Robert J. Dole (Kan.) and Rep. Barber B. Conable Jr. (N.Y.), ranking minority member of the House Ways and Means Committee. A coalition of industry groups that use and produce energy has already started organizing to fight the proposal when Reagan makes it.
Reagan, elected as a tax-cutter, has been talking more recently about raising taxes. After his big tax-cut victory in Congress in 1981, he agreed last year to a $99 billion, three-year tax increase. Later he pushed a 5-cent-per-gallon gasoline tax increase to rebuild highways and bridges. He also has endorsed a speedup of scheduled Social Security tax increases to rescue the system, and is expected to ask Congress this month to tax employer contributions to private health care plans.
Yesterday, the Social Security Commission formally presented its $169 billion package of changes, which are intended to save the retirement system, to Reagan and congressional leaders.
Eight of the panel's 15 members signed a supplemental statement urging Congress to raise the retirement age gradually from 65 to 66 in the next century, and two others endorsed the general concept in separate views. Dole, Sen. Daniel Patrick Moynihan (D-N.Y.), who served on the commission, and Sen. John Heinz (R-Pa.) said they would introduce Senate legislation next week embracing the panel's recommendations.