THE PRESIDENT has started reviewing his options for dealing with powerful critics of the Treasury's tax reform proposals. Those options are far more limited than he would probably like. But the president, having already lost much of the momentum behind his tax reform initiative, doesn't have time to linger over his choices.
Treasury Secretary James Baker recently reaffirmed the president's commitment to cutting the top rate on individual incomes still lower than the 35 percent proposed in the original Treasury plan. That would please the administration's supply-side supporters, but it would severely limit the chances of addressing other concerns. As Mr. Baker also noted, lower rates mean lower revenues unless you still believe in supply-side miracles, and that's something the federal Treasury, with its enormous deficits, can ill afford.
The only way to make up the losses from even lower tax rates would be to cut back proposed increases in the personal exemption -- thereby increasing tax burdens on lower-income and large families -- or to broaden the tax base still more by eliminating additional tax deductions and other preferences. The Treasury, however, in an attempt to placate opponents of its original plan, has been moving in the other direction as it seeks to placate powerful opponents of its originally ambitious plan.
It is said, for example, to be considering revising its proposal to exempt basic fringe benefits while taxing very generous ones as it does other earned income. Instead it would tax the lowest amount of benefits but reward the most-favored employees by exempting very generous benefits. This reversal of general notions of fairness is presumably intended to placate Senate Finance Committee Chairman Bob Packwood, an ardent fringe-benefits fn, and to reduce opposition from labor unions that want the tax code to support their efforts to gain higher benefits from employers.
While Sen. Packwood is worrying about tax breaks for big fringe benefits, Senate Majority Leader Bob Dole is pressing to retain breaks for "little oil wells." And so it goes as each lobby rounds up powerful supporters on both sides of Capitol Hill. Meanwhile, sentiment grows for expanding the minimum tax on wealthy individuals and corporations now paying little or no taxes -- not a bad idea, as Sen. Packwood notes, if it is part of the phase-in of a thoroughgoing tax reform, but a potentially dangerous diversion if it is not.
While the president ponders his choices, these counterpressures are mounting. It's already late in the year for Congress to start considering major tax reform legislation. Further delay in sending a final package to Congress will only feed suspicions that the administration's tax plan is more an excuse for forestalling needed revenue increases than a serious attempt to give the tax system a badly needed overhaul.