Democratic nominee Walter F. Mondale's plan to reduce future budget deficits relies equally on tax increases and spending cuts but is shaped so that only about the top 40 percent of taxpayers would have to pay more.
The plan is a sharp departure from the tax patterns of the last four years. President Reagan has emphasized cuts in taxes rather than increases, though he has signed bills providing both. And the tax cuts Reagan has espoused have been relatively more generous to those in higher income brackets than to those below.
By requiring corporations to pay a minimum tax on their true incomes, Mondale would also reverse a second trend of recent years during which corporate income taxes have fallen to less than 9 percent of all federal receipts.
Mondale's plan would have the third effect of slowing interest payments on the rapidly rising national debt, the fastest growing part of the budget. The substantive spending cuts and higher taxes would mean the federal government would have to borrow less in coming years to finance deficits. This decline in borrowing would take pressure off interest rates. In fiscal 1989, the interest savings is estimated by Mondale to be $51 billion. That is almost a third of his contemplated total deficit reduction of $177 billion.
Mondale's plan is intended to bring down interest rates and reduce the value of the dollar abroad. High interest rates are hurting the housing industry and eventually will curtail business investments, according to Mondale advisers. At the same time, high rates are a major factor keeping the dollar's value high, which in turn limits America's ability to export goods.
Some of the larger Mondale proposals -- in particular for reducing farm price supports and health-care costs -- have also been voiced by the Reagan administration.
But Mondale also wants to trim defense spending by $25 billion in fiscal 1989 -- about a 6 percent cut in the estimated cost of the Reagan defense program that year -- while boosting spending a net of about $22 billion for selected social programs that have been reduced under Reagan.
Altogether, the tax increases and spending cuts would reduce the deficit from $263 billion in 1989, the level estimated by the Congressional Budget Office, to $86 billion.
The administration, forecasting considerably stronger economic growth and much lower interest rates than the CBO, last month put the 1989 deficit at $161.7 billion. It also proposed some $22.4 billion worth of spending cuts and small tax increases to reduce that figure to $139.3 billion.
The new Mondale tax plan would modify tax indexing for about 40 percent of taxpayers, cap the benefits to the highest 6 percent or 7 percent of taxpayers from the final installment of the three-year Reagan cut in tax rates and apply a 10 percent surcharge to a portion of the taxes paid by about the top 1.5 percent of taxpayers.
Mondale would allow indexing to take effect next year as planned for families earning $25,000 or less and individuals earning $15,000 or less. Tax brackets for higher-earning families and individuals would be indexed if inflation was greater than 4 percent a year. Indexing was designed to end the hidden tax of inflation.
Mondale would limit the tax break embodied in the third year of the Reagan tax cut so that no one would receive more of a tax cut than families that have incomes of $60,000 and individuals with $45,000 incomes.
The third part of the proposals for increasing individual income taxes would impose a surcharge on high-income taxpayers: married couples who earn more than $100,000 and individuals with incomes over $70,000.
Mondale would also impose a 15 percent minimum tax on the "economic" income of corporations. Many corporations reduce their taxable income by variety of legal accounting devices, such as accelerated depreciation and depletion allowances. Under the proposal, such so-called tax preferences could not be used to reduce a profitable company's taxes below a minimum level. A similar provision already applies to personal income taxes.
At the highest end of the scale, taxpayers would get hit by all three parts of the Mondale tax proposal -- the change in indexing, the tax-cut cap and the surcharge. A family of four with an adjusted gross income of $200,000, for instance, would see its 1985 taxes rise from $55,765 to $63,441, a 13.8 percent increase.
These and the similar estimates that follow were made by The Washington Post and required some assumptions not provided by Mondale aides. One is that the itemized deductions of affected households equal 23 percent of adjusted gross income. The estimates also assume a 4 percent change for 1985 in tax brackets, the zero-bracket amount and the personal exemption under current law.
Under these assumptions a family of four with a $100,000 income would see its taxes go from $20,159 to $21,609, a 7.2 percent rise.
At $50,000, the tax increase would be $111, 1.9 percent, with the tax bill rising from $5,889 to $6,000. At $35,000, the increase would be $46, 1.5 percent, with the bill going up from $2,988 to $3,034.
For single individuals with $200,000 incomes, taxes would rise from $63,933 to $70,876, a 10.9 percent increase. At $100,000, they would go up from $25,615 to $28,526, 11.4 percent.
An individual with a $50,000 income would pay $332 more as taxes rise from $8,566 to $8,898, a 3.9 percent increase. At $35,000, the increase would be 2.1 percent as taxes rise from $4,721 to $4,818.
In addition to the $46 billion estimated to be raised by the personal income tax changes described above and $15 billion from the corporate minimum tax, Mondale proposed gaining $10 billion from closing tax loopholes and ending "accounting abuses." Tighter enforcement of the tax laws was estimated to produce another $10 billion, and extending a "freeze" on some cuts already written into law -- such as for telephone excise taxes -- would be worth $4 billion.
He also assumed that implementation of his program would help boost economic growth during the 1986-89 period from the 3.1 percent average used by the CBO in its calculations to about 3.5 percent. This faster growth would lower the deficit by $17 billion in 1989 by reducing some outlays, such as for unemployment benefits, and by increasing revenues.