President Reagan indicated in an interview published yesterday that he has doubts about the wisdom of a large business-tax increase of the sort envisioned in his Treasury Department's controversial tax simplification proposal.
A principal feature of the plan is a shift in the tax burden from individuals to corporations, but Reagan told The Wall Street Journal that he "would have to be convinced" of the need.
Reagan also expressed some doubts about another key element in the plan -- elimination of the present preferential treatment of capital gains, the profits on the sale of stocks or other assets. They are taxed at rates lower than those for ordinary income. He agreed in response to a question that the plan could dry up venture capital for new businesses, an indication that the administration may drop the capital gains revision before its final plan goes to Congress.
The president's remarks came amid increasing indications that the administration will propose only a list of general provisions rather than specific legislation when it finally endorses a simplification plan. And officials said they are hoping to reach a compromise with congressional tax-reformers before details are sent to the Hill.
White House deputy press secretary Marlin Fitzwater said Reagan "was not trying to signal a decision" on what would be withdrawn from the simplification proposal issued by the Treasury Department last November. Reagan's remarks, however, came a day after he made a strong pitch for the principles of the Treasury plan in his State of the Union address Wednesday night.
The Treasury plan, which reduces rates and terminates many deductions and credits for individuals and businesses, would increase the corporate tax burden by 25 percent in 1986, rising to 37 percent by 1990 and falling in later years. Taxes for individuals would fall about 6 percent.
Asked whether he supports the corporate tax increase, Reagan said, "I haven't even made an attempt to study that bill in detail that much to know that . . . . No, I would have to be convinced of the need to do that because I'm a believer that one day we must recognize that only people pay taxes. And some day I would hope that we could arrive at a tax structure that would recognize that you can't tax things, you only tax people."
Reagan reiterated that he does not want tax simplification to be a back-door way to raise taxes. ". . . If it is revenue-neutral, it will end up raising more revenues from the simple reason that you will broaden the base of the economy," he said.
Removing business-tax provisions from the Treasury simplification plan, however, would make it more difficult to prevent the bill from losing revenue. Reagan has dropped other hints about provisions he dislikes. In the State of the Union address, he referred to "reducing corporate rates while maintaining incentives for capital formation," a phrase some business and congressional observers interpreted to mean he wants to retain accelerated depreciation write-offs for the cost of plant and equipment.
Restoring accelerated depreciation and maintaining the 60 percent exclusion for capital gains income would reduce federal revenues sizably from the Treasury plan's predictions. And recapturing the lost income from individuals' taxes could disrupt political support for tax restructuring.
"I think what you have seen is that the president has clearly abandoned the Treasury plan," said Finance Committee member Sen. Lloyd Bentsen (D-Tex.). "He's obviously leaving himself in the position of continuing the rhetoric in favor of reform but not getting involved in the hard choices. He's bucking the details to Congress."
In the Journal interview, with the exception of his remarks about business taxes and capital gains, Reagan said he hesitated to "give any opinion on any single thing" involved in simplification until a final version has been worked out.
How and when that will happen is less clear than when the Treasury plan was unveiled in November. Reagan said in a statement then, "I will present my tax simplification and reform plan to Congress early next year, when I hope we can move ahead in a bipartisan manner to benefit all Americans."
Since then, spending reduction has taken higher priority in the administration, chief of staff James A. Baker III has become treasury secretary and the administration has backed off sending legislation to Congress. Officials say they hope to hash out a compromise with the leading congressional sponsors of tax simplification from both parties.
On Thursday, Fitzwater said the administration would send a tax-simplification "message" to Congress this month or in March that would "form the basis for congressional consideration."