THE TAX DEBATE is rapidly drifting away from reality and toward conventional posturing. President Reagan is trying to push the blame for the budget deficits onto the Democrats although, as his January budget proposals demonstrated, the administration itself is running out of ideas for cuts in spending. Similarly Speaker O'Neill hopes to draw attention, a bit belatedly, to the issue of tax fairness through a campaign for a $700 limit to next month's income tax cut. It is quite true that the federal tax structure is much less fair than when Mr. Reagan took office. But the damage was done in the 1981 bill with the active, not to say enthusiastic, participation of the Democrats.
The reality is that the federal government now collects only $3 for every $4 that it spends. Financing a deficit of more than $200 billion this year will keep interest rates high, and high interest rates will stunt the economy's recovery. The only effective remedy is the large tax increase that nobody seems very eager to talk about.
Anyone who wants to see unemployment come down and living standards go up, not only in this country but in Western Europe and especially in Latin America, needs to pay attention to those interest rates. Unhappily, fiscal mistakes here in Washington now have their most severe social effects--via the structure of international debt and the interest on it--in countries where people live closer to the edge of survival than they do here.
Fairness in taxation is deservedly a rising issue in American politics. Cutting the taxes on substantial wealth has had none of the results claimed for it two years ago by the theoreticians of this administration. There has been no visible rise in savings or investment. But the Democrats' $700 cap on the July tax cut is a gesture, not a reform. The rates on incomes over $50,000 a year are less signficant than the inordinate maze of tax preferences and exemptions that has become an invitation to high-bracket tax avoidance.
In an ideal world, the president and Congress would now be cooperating in a very large tax increase, to be phased in by stages over the next several years and constructed with great attention to improved equity. Everybody in politics seems to agree that the very suggestion is utopian and altogether beyond the limits of possibility. But does that mean that nothing is possible except continued deficits, continued high interest rates and continued low economic growth?
Last year the Senate Republicans got a tax bill passed. Without it, interest rates would not have fallen over the summer. This year the debate is degenerating into sparring between Mr. Reagan and the House Democrats. Neither side is living up to its responsibilities. But the greater responsibilities are Mr. Reagan's. He is, after all, the president.