Democratic leaders say guns-and-butter budget risks inflation

As a great debate kindles in Congress over President Reagan's economic policies, the vision of America's future looks very different from opposing sides of the political aisle.

Congressional Democrats, taking up Mr. Reagan's challenge to come up with a better program, see danger signals down the road -- including higher inflation -- if key elements of the President's proposals are not changed.

Rep. Henry S. Reuss (D) of Wisconsin sees in the Reagan program a "weird combination" of "supertight money," leading to higher interests rates, and a "sloppy fiscal policy" of unwise tax cuts.

All this, plus alternative suggestions, are embodied in the Democratic version of a fresh Joint Economic Committee (JEC) report, outlining what lies ahead for the US economy.

Because the JEC, chaired by Mr. Reuss, has 10 Democrats and an equal number of Republicans, the GOP members produce their own report -- strongly supportive of the President.

Democrats, according to Reuss, generally agree with President Reagan on several aspects of his program:

* Business should get faster tax write-offs for investment in new plants and equipment, as the most efficient way to create jobs and improve productivity.

* Reform of the federal regulatory system is needed, to "reduce unnecessary government regulations and paper work."

* Government spending should be reduced "promptly," with no program to be exempt from scrutiny.

Here consensus ends, as Democrats on the JEC level their big guns at the President's plan to trim individual income taxes across the board and to support the Federal Reserve Board's tightening of money supply targets.

Long-term commitments to tax cuts -- i.e., the three-year 30 percent across-the-board income tax cuts advocated by the White House -- risk "reigniting inflation" and also favor the well-to-do, the Democrats claim.

Instead, JEC Democrats argue, Congress should pass the kind of income tax cut that would offset this year's payroll (social security) tax increase, thus relieving a burden on middle-income taxpayers.

Further tax cuts should be considered, only "when we can be sure that we have made progress against inflation, that the budget is under control," and that tax incentives for business have upgraded plant, equipment, and productivity sufficiently to "accomodate the new surge of demand."

Republicans on the JEC, led by Sen. Roger W. Jepsen (R) of Iowa, committee vice-chairman, deny that the Reagan-planned tax cuts would be inflationary, especially when coupled with major budget trims.

If Americans know, Republicans argue, that their tax burden will decline over three years, they will work harder, save and invest more, boost the output of goods and services, and help to moderate inflation.

The guns-and-butter issue crops up in the JEC report, with chairman Reuss noting that President Reagan plans both to increase defense spending and to cut taxes.

Such a policy, Reuss told reporters, risks repeating the mistake Democrats made during the Vietnam war of thinking that the nation could have guns and butter at the same time.

"Guns and butter piled on top of each other," said the Wisconsin Democrat, "are as dangerous in 1981 as they were in 1967."

Reuss and his Democratic colleagues deplore the fact that the Federal Reserve Board wants to slow down the growth of the nation's money supply even more this year than it did in 1980.

Fed chairman Paul A. Volcker says he plans a "frankly restrictive" policy to combat inflation by lowering money supply growth targets by a half percentage point in 1981.

"The federal reserve," says Reuss, "should indeed keep growth targets austere , but not more so than in 1980, when they caused two bouts of 20 percent interest rates."

Targets just announced by the Fed, said Mr. Reuss, mean a "harsh blow to capital investment," because competition for supertight capital will drie up interest rates, making it too expensive for many businessmen to borrow.

monetary restraint, according to JEC Democrats, should be "moderate," combining the need to reduce inflation with the equal need to maintain steady growth of the economy.

What Americans now are seeing, many analysts believe, is a shrinking of consensus between Democrats and Republicans on the President's economic program, as Congress examines both its details and implications.

Democrats, well aware of the political whirlwind which swept through the land last November -- and, in the House, aware that they face voters again in less than two years -- still seek agreement where possible with the White House.

But officials on both sides differ honestly over whether the Reagan tax cuts would lead to higher inflation and whether budget trims will fall too heavily on Americans on the lower rungs of the eco nomic ladder.

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