Tax cut: is Reagan head start enough?

In the few workweeks between Congress's July 4 and August vacations, the struggle over paring taxes paid by businesses and regular folk will dominate Washington.

As this second major legislative battle of 1981 is joined this week, President Reagan is regarded as the man to beat.

In the House Ways and Means Committee, the Democrats will finish a tax bill that arrives at business and individual tax cuts differently from the President's version. Democratic leaders think their approach is more equitable for middle- income earners because it gives them a more hefty tax break than Reagan's version. It gives many businesses better tax benefit by writing off equipment costs in one year. And Democrats feel their plan is more "prudent" because it postpones a third-year cut until benefits from the previous cuts have been proved.

But many Democrats agree that when the battle over taxes is joined in the House of Representatives, it will be won by brute political force, not by judiciously weighing the pros and cons of competing tax-cut strategies.

"Our version will be very attractive if anyone looks at the details," says Rep. Donald Pease (D) of Ohio, reporting on a July 4 return to his Medina, Ohio, district to see what his constituents were thinking. The trouble is, Congressman Pease says, his constituents are paying little attention to the details.

At town meetings and voter "listening sessions" he attended, "there was practically no word at all, except for a couple of broad references to support the President on his economic package," he says.

"If the President says, "I'ts my three-year cut against their measly two-year cut' or 'my whole package is at stake,' all we can put against it is greater fiscal responsibility and the deficit in 1984 -- and he wins," Pease says.

House Ways and Means Committee chairman Dan Rostenkowski (D) of Illinois and the Democratic leadership have launched a publicity counteroffensive that includes calls to editorials boards of major newspapers and a six-state, grass-roots drive in the South to corral wandering "boll weevil" conservative Democracts.

But they concede that their lobbying comes late in the game, that a pattern of big-vote defeats on the economic issues has set in, and that they lack the White House's firepower, President Reagan gave an example of this in a speech in Chicago July 7, when he prodded the Democrats to finish their bill quickly enough for a vote this month.

The most discussed scenario foresees the Democrats prevailing in the Ways and Means Committee, losing only one of their members, Rep. Kent Hance of Texas. The Democratic version would then go to the House floor.

Meanwhile, the Republican-controlled Senate's tax bill, close to the President's prescription, would be readied for a last-minute showdown. Congressman Hance and Rep. Barber Conable of New York, the ranking Republican on the Ways and Means Committee, would submit the Senate tax bill to the House as a "bipartisan" version.

If the Hance-Conable bill prevails, there would in effect be no need for a conference committee session between the House and Senate because any differences would have been settled on the House floor. The tax war would be over.

But if the White House's grip on the two dozens or so Democrats that joined it in its budget vitories falters, it could be forced to compromise with Congressman Rostenkowski and the Democrats, argue some observers, who see the tax struggle likely unresolved by fall.

"I dont't look for a tax bill until the middle of September," says Robert C. Brown, executive vice-president of the Tax Foundation Inc., a Washington-based group that analyzes tax policy and trends.

"It's going to be decided on a political basis, not on a weighing of economic outcomes," he says. "On balance, the Ways and Means and the President's tax programs aren't that far apart.

My personal view is the President has to come to the bargaining table with the chairman of the Ways and Means Committee. I doubt we can do all those things the President wants and come out with a balanced budget in 1984."

The Democrats have been very innovative on their tax proposals, says Mr. Brown, whose rather conservative Tax Foundation backed Reagan on the budget issue.

Brown worries that an attempt to force the Senate's tax cut on the House could lead to a legal fight that would postpone the effectiveness of the tax cut.

"If a court test develops over the House's constitutional right to initiate tax legislation, it may mean business would hold back on new capital expenditures until the legal outcome becomes clear," Brown says.

Many small business groups are really behind the House Ways and Means Committee's bill, Brown says. "The Democrats are counting on the White House's winning margin shrinking," he says. "I don't think many of the Democrats who abandoned their party on the budget would do it again. Congress has a basic responsibility -- no matter who proposes tax changes -- to separate the wheat from the chaff."

Rudolf Penner, a former Ford administration economist now a tax policy analyst with the American Enterprise Institute, says the differences between the Democratic and GOP tax measures "would not be enormous" -- echoing the conclusion of congressional staff tax analysts and private economic forecasters. But if a compromise is needed, he thinks the White House would accept a trigger mechanism for a third-year tax cut, perhaps hinging the 1984 cut on holding feder al outlays to a percentage of the gross national product.