Battle line drawn over tax cut issue

Already Jimmy Carter and Ronald Reagan are firing salvos across each other's bows on what may become the hottest pocketbook issue of the presidential campaign -- tax cuts.

Almost everyone agrees that recession and inflation, taken together, will impel the United States government toward some form of tax cut next year.

Disagreement begins and grows sharp over what kind of tax cut, benefiting whom.

President Carter holds that Mr. Reagan's program, featuring a 10 percent across-the-board personal income tax cut, would plunge the federal budget into deficit and nudge inflation higher.

Putting all of Mr. Reagan's proposed tax cuts together, says Treasury Secretary G. William Miller, would cost the US $282 billion in lost revenues in fiscal 1985. Beginning with $26 billion or $27 billion in fiscal 1981, says Mr. Miller, tax revenues lost to the Treasury under the Reagan proposals would amount yearly toward the 1985 figure.

Mr. Reagan, backed by many Republican legislators in both houses of Congress, insists this would not be the case. Buying power unleashed by the tax cuts, he claims, would generate so much new business that tax revenues overall would grow , unemployment would decline, and productivity -- or output per man-hour of work -- would be boosted enough to outweigh inflation.

In industrial lands such as West Germany and Japan, for example, where productivity gains outstrip inflation, living standards consistently rise.

"When I talk of tax cuts," said Mr. Reagan July 17, "I am reminded that every major tax cut in this century has strengthened the economy, generated renewed productivity, and ended up yielding new revenues for the government by creating new investment, new jobs, and more commerce among our people.'

Turning to the attack, the Republican standard-bearer charges the Carter administration with having "given us the greatest tax increase in our history."

This echoes a claim by the Republican leadership in Congress that "tax initiatives" during the Carter administration have boosted taxes by an average of $1,000 per worker.

Republican leaders arrive at this figure by lumping together $28.7 billion in higher social security taxes; $15 billion from the windfall profits tax on oil companies; $15 billion in taxes from workers pushed into higher brackets by inflation; and a variety of other measures.

Experts agree that, because of "bracket creep" and higher social security levies, it would take a tax cut of more than $15 billion next year to keep the tax burden on individuals from growing.

Democrats counter that higher social security taxes were a joint initiative of Congress and the White House, based on widespread agreement that more money was needed to keep the pension system solvent.

Also, without a windfall profits tax, Democrats say, that extra $15 billion would have gone to the oil companies.

Congressional Democrats, meanwhile, plan to introduce their own tax cut plan shortly, including relief for business and also for individuals, geared to lower-income Americans.

This plan is not backed by President Carter, who wants Democrats to wait until 1981 before advancing a tax proposal to counter the Republican approach.

Piercing the murk of rhetoric, what do Messrs. Carter and Reagan propose specifically in the way of tax cuts?

President Carter wants no tax legislation this year, lest inflationary fires be stirred. His White House staff is working out details of what he might propose next year, if reelected.

Some tax relief would be offered to business -- either in the form of accelerated tax write-offs on buildings and equipment, or lower corporate income tax, or both.

Individuals would be offered some relief, though of undefined nature, to offset next year's steep hike in payroll, or social security, taxes.

Mr. Reagan's 10 percent across-the-board personal income tax cut would be a "down payment" on a 30 percent reduction spread over three years.

Beginning in the fourth year, he would index the tax system, to prevent workers from being pushed into higher tax brackets merely because of inflation.

Corporations, says Mr. Reagan, would get faster depreciation to "stimulate investment in order to get plants and equipment replaced, put more Americans back to work, and put our nation back on the road to being competitive in world commerce."

A number of senior policy advisers to the last six presidents, both Republicans and Democrats, claim the Reagan tax cut program would "nourish inflation," in the words of Arthur F. Burns, former chairman of the Federal Reserve Board.

Where Mr. Reagan and his critics part company is over the presidential nominee's call for a 10 percent across-the-board personal income tax cut, effective Jan. 1, 1981.

Three objections are voiced:

* Upper-income americans would benefit more than taxpayers at the lower end of the scale, because their tax savings would be greater.

* Lost tax revenue would throw the federal budget into deficit.

* Inflation would be spurred, by leaving this much "extra" money in the hands of consumers.

The risk, as critics of Mr. Reagan's plan see it, is that a consumer-oriented tax cut -- that is, personal income tax cuts -- would not bring about the good results cited by the Republican presidential contender, but instead would leave the US with higher built-in inflation.