Baker keeps cool in economic hot seat. That calm may be challenged as trade, tax, deficit issues heat up

Treasury Secretary James A. Baker III is perched atop a powderkeg of explosive economic issues. In his dual roles as Treasury secretary and chairman of the administration's recently formed Economic Policy Council, Mr. Baker is the front man for President Reagan's economic policies. This is at a time when the domestic economic outlook is cloudy and the world debt crisis continues to simmer.

Meanwhile, the administration's tax-reform plan, trade policy, and budget-control efforts are all coming under increasing fire both from members of the President's own party and from congressional Democrats.

The tall and tanned Treasury secretary has a reputation around Washington as a man of intelligence, personal charm, and political savvy. Just last week, House Ways and Means Committee chairman Dan Rostenkowski (D) of Illinois gave a speech in which he unleashed a string of positive adjectives to describe the Treasury secretary.

But Baker's abilities, including well-honed media-handling skills, are likely to be fully tested in coming months. A variety of tough issues will come to rest on Baker's desk, which is flanked by two end tables, one holding a duck decoy and the other a picture of his wife Susan and the youngest of their eight children.

The political heat does not seem to have diminished Baker's enjoyment of the Treasury post. He took the job six months ago after serving as White House chief-of-staff in Mr. Reagan's first term.

``I am happy about everything,'' concerning the new position, Baker said Friday morning in an interview in his sprawling office. Staff members say Baker and Deputy Treasury Secretary Richard G. Darman typically put in 12-hour days. Baker, an impeccably tailored Houston millionaire and former corporate lawyer, said:

Tax reform has a ``fair shot of making it in 1985.''

Opposition to tax increases remains ``the heart and the guts and the soul of the Reagan revolution.''

A strengthening of the dollar ``in the short run'' would not be suprising as a result of Congress passing a budget resolution.

Unless the nation maintains a free-trade stance, ``we will start a trade war that we may or may not win.''

Despite recent signs of continued rapid growth in the nation's money supply (M1), the current course of monetary policy being followed by the Federal Reserve Board ``is quite adequate.''

While Baker said he is ``frankly every bit as optimistic'' about tax reform as earlier this year, he added that ``it has failed every time the country has tried to do it and we shouldn't underestimate the magnitude of the job.'' He still thinks reform would have the best shot of clearing Congress in the first year of the President's second term.

Senate Finance Committee chairman Bob Packwood (R) of Oregon recently has said chances for reform would not be hurt if the process extended into 1986.

Treasury has not decided how to eliminate the $25.1 billion revenue loss the congressional Joint Committee on Taxation said the President's reform plan would cause over the next five years, a gap $13.5 billion higher than Treasury had estimated. Until Treasury and joint committee staffers iron out estimating differences, the gap's precise size will not be known, Baker said.

The Secretary said he would not ``prejudge'' whether the President would accept changes Representative Rostenkowski last week suggested his committee would make in the administration's reform package. These include giving a greater share of the tax relief in the plan to the middle class, reinstating the two-earner deduction for married couples, and trimming certain business tax breaks.

The President remains committed to a top personal tax rate of 35 percent, Baker said. House Ways and Means Committee Republicans last week issued a statement differing with the Reagan plan on several points. They said: ``We do not believe that an arbitrary target for rate reduction should be established.''

There have been growing calls, including some from within the Republican Party, for a tax hike to narrow the budget deficit. But Baker rejects this.

``You don't get to the last resort during the first budget cycle following the [election year] commitment'' against new taxes, Baker said.

Last week Reagan torpedoed a Senate Republican plan to trim the deficit by, among other things, imposing a $5 per barrel tax on imported crude oil. The rejection triggered the wrath of Senate Majority leader Robert J. Dole (R) of Kansas.

The dollar could rise ``short term'' as a result of a budget resolution finally clearing Congress, Baker said. ``When a country begins to get its fiscal problems under control, generally its currency strengthens,'' he said.

``We have been very happy to see the dollar weaken gradually and moderately'' in recent weeks. Such a long-term weakening ``will be very beneficial to our trade deficit,'' Baker said, since it makes it easier for the United States to sell goods abroad.

Baker rejected charges that the Reagan administration does not have a coherent trade policy. ``There is a lot we can do and that we have been doing'' to cope with a massive trade deficit. He cited encouraging trading partners to stimulate their economies, working to boost US companies' access to foreign markets, and ``yes, we can continue to try to reduce the [budget] deficit.''

He said, ``I am worried about the trade deficit but I don't accept the automatic relationship'' that some economists see between a high budget deficit, a high dollar, and a large trade deficit. The market-opening program Japan unveiled last week is ``a step in the right direction,'' Baker said. He agrees with US Trade Representative Clayton Yeutter that the time frame for Japan's market-opening actions should be sooner than 1987 and 1988, when parts of the plan are scheduled to begin.

The Treasury chief rejects the idea of setting specific market-opening goals for Japan and imposing penalties on Japanese products if the goals are not reached. John C. Danforth (R) of Missouri, chairman of the Senate's subcommittee on international trade, renewed his call for such legislation last week.

``What you will end up doing is having controls on their exports which isn't market opening, it isn't free-trade in its approach, it is market closing,'' Baker says. One byproduct of such a course is boosting the cost of those Japanese goods which finally do make it to the US.