As aides were briefing President Reagan recently on the Treasury Department's new tax simplification proposal, officials say he suddenly asked, "What about country club dues?"
The deduction of country club dues as a business expense is one of many tax breaks the Treasury plan would eliminate. But "many doctors and lawyers get new business that way," one official recalls Reagan saying. "A small businessman can advertise, but lawyers and doctors depend on the country club to get new business."
Reagan's query pointed up the curious, almost upside-down nature of most of the tax and budget proposals his administration has floated since Election Day.
Indeed, the most radical of them take dead aim at Reagan's natural constituencies.
From oilmen who would lose their depletion allowance to farmers (farm price supports) to the country club lawyers and doctors, and even to the middle class (college student loans), the White House proposals would all take a toll.
In his first four years, Reagan moved heavily against federal programs that benefit the poor; from that came the so-called fairness issue in the campaign.
This time, while there are also proposed cuts for the poor, the tax and budget emphasis is on subsidies that benefit business and the upper and middle classes.
It is as if Reagan in his last four years in office might finally intend to do what conservatives generally have preached more than practiced in this country, and truly extract government from the economy.
The business targets are privately described by Office of Management and Budget Director David A. Stockman as "the six sob sisters of subsidy."
His list includes big business (it would lose the investment tax credit and accelerated depreciation under the Treasury plan, plus some loan programs of the Export-Import Bank under proposed budget cuts); small business (the Small Business Administration would be abolished); farmers; transportation (the federal Amtrak subsidy would go and shipping companies would have to pay user fees); local government (state and local tax payments would no longer be federally deductible, community development and Urban Development Action Grants would be wiped out, mass transit subsidies would be cut); and credit (the budget director would curtail loans for items from college tuition to rural electrification).
The politics of this are at best unconventional, and Reagan may yet back off some of the proposals.
But some close advisers said in interviews last week that they think Reagan may feel that this is his last chance to cement his conservative view of government into law and, never intending to seek office again, he is inclined now to question claims of special interests -- such as agriculture -- that he avidly courted only a few months ago in the campaign.
Reagan got only about half the budget cuts he requested between 1981 and 1984, and most of those were in social programs.
There were also some stabs at business subsidies, and his first budget book, in February 1981, vowed as well to reduce "subsidies to middle- and upper-income groups." But in the heat of other battles, it was left behind, and Congress gave little ground.
Stockman later lamented, "A lot of things that could have been done . . . were subverted by special interests."
Now Reagan appears poised to try again. Driven in part by the need to bring down $200 billion deficits and in part by his desire for lower individual tax rates, Reagan is seeking sacrifice by groups whose federal benefits were largely left unscathed in earlier years.
In contrast to the themes of Reagan's campaign, the message is not of optimism, but of painful choices.
One senior White House official acknowledged, "It's obvious that we have a much tougher job this time. These are Republican programs. The president knows that, and the cuts we have proposed won't necessarily be the final ones."
A Republican political strategist closely associated with the White House said, "It's like putting a revolver at your head."
Added a top Senate Republican aide, "The fact is, this budget is going to come up here and these guys are going to be asked one more time to do something that is fundamentally suicidal: cut all these programs to save a few billion, when the deficit is $200 billion."
Another top Reagan political operative fretted that the new budget and tax targets may be like President Jimmy Carter's ill-fated hit list of water projects that he wanted to eliminate, but most of which Congress eventually kept.
Reagan, however, intends to tryto put a more forward-looking and positive twist on these proposals when he starts to "sell" them next year. Rather than individual instances of sacrifice, he will stress the national interest, aides said.
He tried to do this Friday in the opening statement at his news conference, saying he wanted to put a "broader perspective" on the budget cuts. The American people "voted for the expansion of opportunity for all, and that's what we mean to achieve with policy that will control spending, simplify the tax system, improve America's productivity and competitiveness, so that we can keep this great nation of ours moving forward."
In the case of tax simplification, there is a big potential trade-off for the sacrifices Reagan may seek -- lower tax rates for individuals. But it comes at the cost of higher taxes on business, which was a major base of support for Reagan's first-term economic program.
White House officials said Reagan's remark about country club dues for doctors and lawyers reflected his own uncertainty about this trade-off. On Friday, the president embraced the Treasury proposal for the first time, but steered away from specifics.
A major justification for eliminating many of these business tax breaks has been that they discriminate among industries and within them, distorting what should be market-oriented economic decisions. But this approach is a departure from Reagan's first term, when the administration sought tax breaks from Congress to encourage business investment, including the accelerated depreciation that would be wiped out in the new Treasury plan.
In the case of the budget, some of Reagan's advisers concluded earlier this year that it would be politically difficult to take dollars away from the poor who now get federal benefits, although they believed totals could be held at existing levels.
The result was that -- with tax increases, Social Security and defense spending put off-limits by Reagan -- there was nowhere else to look for savings but the middle-class programs and the "economic subsidies" to industry.
Although few noticed at the time, Stockman identified these subsidies in testimony to the Senate Budget Committee last February. He began slashing away at them in the weeks after the election. And last week, he presented Republican congressional leaders with a 25-page summary of Reagan's budget cuts, then warned them, a congressional source says, to "watch out for the six sob sisters of subsidy."
The $34 billion in domestic spending cuts Reagan tentatively approved last week includes dozens of subsidies that would be eliminated or sharply restricted.
College student loans would be limited to those families with adjusted gross income of less than $30,000 a year. The government would slap user fees to pay for all the operation and maintenance of deep water ports. It would stop subsidizing the mails, except books for the blind and schools. It would wind down federal grants for sewer construction. It would eliminate Urban Development Action Grants that cities like Baltimore have used for rebuilding.
Stockman has concluded, as Reagan's first term nears its end, that any campaign against subsidies must be sold as one package, or special interests will nibble it to death. One big obstacle, he told the Senate, is "the natural, parochial political pressures to retain previously granted advantages."
Virtually all the subsidy programs, from aid to college students to farmers to cities, have vigorous defenders on Capitol Hill, and many of the Reagan budget cuts have been rejected over the years by congressional committees. Reagan aides said they realize that in many cases, the American people have come to expect the government's help and don't regard the programs as subsidies that can be withdrawn.
Rep. Edward R. Madigan (R-Ill.), ranking Republican on the House Agriculture Committee, has supported the rural electrification program in the past and said last week that the administration's ability to curtail the federal subsidy to it would depend on taking a "consistent approach" nationwide, "rather than a regional one."
For example, he said, Reagan should curtail water-price subsidies to western growers. "Someone like myself cannot help the president eliminate things in my region when he's not talking about California," Madigan said. "He's putting me in a politically indefensible position."
Madigan said he got a taste of how the country is reacting to tax simplification at a Farm Bureau meeting in Chicago after the Treasury plan was unveiled. Farmers were "standing in line" to denounce the plan because they feared the loss of deductions on interest and state taxes, he said.
"That Treasury Department proposal," he added, "hits hard at people who make up the backbone of Reagan support in the Midwest."28
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