The GOP tax hike
The Republicans cannot but feel somewhat uncomfortable for having passed the largest tax boost in the nation's history (in inflated dollars). Indeed there is a certain wry humor in the situation which will not be lost on Americans: what the government giveth in tax cuts it now taketh away in tax increases. Still, Senator Bob Dole and his fellow Republicans are to be commended for meeting the congressional bipartisan mandate to raise new revenue. With budget deficits climbing to stratospheric levels, the national interest demands legislative action.
Will the Democratic-controlled House now have the courage to come up with its own tax bill or support the Senate effort? The Democrats clearly are weighing the political cost come this November. They would prefer to let the GOP take responsibility for the still shaky state of the economy and for any tax hikes. Some therefore want to avoid fashioning a ''Democratic'' tax bill and to simply vote the Senate bill up or down. That may seem good politics, but the Democrats open themselves to loss of credibility if they stoop to criticizing the Republican plan and refuse to come up with an alternative of their own.
The Senate bill is fairly reasonable. Consumers will have to pay more for cigarettes, phone calls, and airline tickets (though, regrettably, not liquor) and will be allowed smaller deductions for medical expenses. But, if this hits the middle and lower-income groups hardest, there will be some compensation in knowing that corporate firms can no longer take such generous deductions for those notorious three-martini lunches.
Perhaps most controversial will be the provision for withholding income taxes on stock dividends and interest payments - a measure that runs counter to the administration's policy of spurring savings and investment. Yet it is hard to quarrel with the effort to catch tax evaders, i.e. making sure that all those who receive dividend and interest income pay tax on it. This provision alone is expected to bring in $12 billion over three years. If the Democrats consider the measure unfair, they could find some other way to stimulate savings - again raising the limit on deductions of interest income, for instance.
As needed as the Senate-adopted tax raises are, it has to be recognized that the three-year $99 billion program will make only a small dent in closing what are expected by some to be deficits totalling over $300 billion in the next three fiscal years. The Republican goal of a balanced budget is as elusive as ever, and it is clear that fundamental progress on reducing federal deficits will not be made until Congress and the administration find the fortitude to cut back on the major budget items - defense spending and entitlements.
While Congress wrestles with its conscience - and the political season - the American people can perhaps take some comfort in the fact that the economy is on a path of recovery. It is a tepid recovery, to be sure, and it is distressing to live with such a high rate of bankruptcies and such high unemployment, conditions which demand attention. But the public needs to bear in mind that an important battle is being won - the battle against inflation. The Morgan Guaranty Survey notes that the inflationary trend of the past 20 years ''appears to have been broken'' (despite the increase in the Consumer Price Index announced last week).
This progress, combined with the new pattern of decline in wage increases and the Federal Reserve Board's determination to keep the money supply under control , means that the US economy should be able to begin its slow emergence from recession without spurring another round of inflation. That has been the pattern in the past. The recovery will take more time, however, and the challenge will be not to undo the gains made so far.
What could set things back is failure to make the corrections in the Reagan economic program which Republicans themselves acknowledge must be made. Tax increases may become the butt of jokes after all the administration's fuss about giving the American people a multiyear tax cut. But there is no escaping those soaring deficits - and the damage they do to interest rates and business confidence.
Senator Dole and his fellow lawmakers are on the right track. They must keep going down it.
