President Reagan's tax plan would collect less tax revenue than the current system, but the shortfall would not significantly increase the federal deficit, the Joint Committee on Taxation reported yesterday.
The chairmen and ranking minority members of the House and Senate tax-writing committees responded to the new figures by agreeing, in a statement with Treasury Secretary James A. Baker III, to seek additional revenue-raising provisions to keep the plan from losing money.
Tax experts from the nonpartisan joint taxation committee found that the revenue shortfall would be $25.1 billion over the next five years; the Treasury Department had estimated it at $11.5 billion.
Noting that the committee's projected shortfall is less than one percent of the income tax revenue the Treasury Department will collect from 1986 to 1990, the statement said, "We are concerned by its possible perceptual impact on the drive for tax reform. Therefore, we want to reaffirm that revenue-neutrality remains a firm underpinning of tax reform."
The statement was made by House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), Rep. John J. Duncan (R-Tenn.), Senate Finance Committee Chairman Bob Packwood (R-Ore.), Sen. Russell B. Long (D-La.) and Baker after a 40-minute meeting between the secretary and the two chairmen.
In a separate statement, Packwood called it "amazing" that the estimates by the Treasury and the joint committee were so close, considering that income tax revenues over the five-year period are projected at $2.7 trillion. Packwood pledged, as he has before, to try to push a tax reform bill through the Senate by Christmas if the House can send the joint committee a bill by mid-October.
The joint committee's estimates are important to the process of tax reform because they will be the official figures on which the tax-writing committees will base their work. The $13.6 billion difference between the committee's forecast and the Treasury's arose from less optimistic forecasts about economic growth, updated information about the tax base and different estimating techniques, staff officials said.
Treasury officials have not yet officially started looking for ways to raise more money to apply to revenue system overhaul, although the statement promises that the new measures will be proposed before the Ways and Means panel begins writing its tax bill in the fall. But officials lost one option they had counted on when the committee voted Wednesday to extend the 16 cent per pack cigarette tax and use the revenue gained to reduce the deficit.
Officials said other possibilities include cracking down on an accounting technique by which defense contractors delay paying taxes. Other options could come from the Treasury Department's tax-reform plan, which generally wiped out more tax preferences than the president's later version.
"I'm sure we'll comb over 'Treasury I.' It's a fertile field," a Treasury official said.
The new figures appeared to calm the fears of Rostenkowski and Packwood, who are committed to producing a tax bill that does not increase the deficit. But other factors may make it hard to keep the plan from losing money even if the joint committee's estimates, which are preliminary, hold up.
For example, the Reagan proposal includes several elements Congress will almost surely change, reducing revenue further. It would include all investments under the new tax law even if the contract for the investment was signed before the law was passed.
Congress is almost certain to permit those investments to be covered under the old tax code, decreasing revenues by about $8 billion.