THE REAL question is not whether to increase taxes but how much and--crucial point-- when. Dan Rostenkowski, the chairman of the House Ways and Means Committee, is on the right track. He proposes abolishing, at one blow, all of the delayed-fuse tax breaks that, under present law, will open up over the next three years.
When Congress wrote that huge tax bill in 1981, it strung together a succession of cuts in every federal tax you can think of. Since President Reagan was then still committed to balancing the budget in 1984, Congress tactfully delayed some of the biggest cuts until 1985 and 1986. This year all of the Reagan tax legislation taken together will leave federal revenues $68 billion lower than they otherwise would have been, the Congressional Budget Office estimates. By 1986 the same laws, if they remain unchanged, will leave revenues $154 billion lower than they would have been. That helps explain why the federal deficit would keep rising in the years ahead even with a steady recovery of the economy. And those are the future cuts that Mr. Rostenkowski proposes cancelling. He's pointing the right way out of the present dilemma.
The dilemma is the timing. If a big tax increase comes too soon, it could stunt the recovery. But if the recovery gets under way with those huge deficits still widening, interest rates will quickly start upward again. Congress immediately dismissed the president's halfhearted proposal for contingent taxes to take effect in 1986. It depended on too many conditions to be believable. A better solution is a phased tax increase, with its segments taking effect in successive years as the recovery gains momentum.
Mr. Rostenkowski is correct not to join the cry to repeal the July cut in the income tax. But why not make the July tax cut temporary for two years? If business improves and unemployment is falling, as most people expect, 1985 would be a good time to go after the deficit. If the forecasts are wrong and business isn't improving, Congress can vote then to extend the temporary cut.
A gradual increase in tax revenues over the next several years is essential, unless the country is to continue to run extremely large deficits through the 1980s, with all the distortions, instability and inflation that they imply. This year is the time to lay out the architecture of that increase and to build a flight of steps, not conditional but fixed and reliable, on which revenues will rise over the years ahead. That's the best and perhaps the only way to ensure that the federal government will not run increasing deficits through the years of recovery.