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6 Federal Tax Policy Memo 1 (1982)

handle is hein.tera/fetxcyemo0006 and id is 1 raw text is: TAX  FOUNDATION'S

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February 1, 1982                                 VOL. 6__._ NO..I
KIBOSH ON NEW TAXES--REVENUE ENHANCING STILL ALIVE
While almost everyone had climbed aboard the tax increase train that was scheduled to
leave sometime after 1982, there were a few holdouts like Jack Kemp, the Wall Street
Journal, and, oh yes, that fellow in the White House. Now that the President has said
no to any large new taxes, will the issue fade away? Probably not, because significant
improvement in the budget outlook for fiscal 1983-85 is so iffy. Without presidential
support, of course, there probably will be no real action on a major tax program this
year. In the meantime, the unpleasant budget facts and election year politics dictate
that the debate will go on.
The Administration, of course, has renewed its call for the revenue enhancing
measures outlined last fall plus a few new ones. It also has proposed a tougher
minimum tax on corporations. The estimated revenue effects of these enhancers will
not make a really significant difference in terms of the projected budget deficits.
The minimum tax proposal is designed more specifically to deflect criticism of ERTA for
being too generous to business. But it's going to make for some corporate unhappiness
as well--and qualms as to what Congress might do with it.
With any tax increase recommendations on the table, there are some danger points. One
is that they could undermine recovery from the recession. This would not seem to be a
high risk with selective tightening of a few income tax provisions. They would not
appear to have a serious effect on the overall level of investment and economic
activity in 1983-84. But if these revenue enhancing proposals are turned into a major
attack on ERTA or other capital formation oriented provisions, the question of economic
impact becomes much more pointed. Of course, it's never been easy to muster support
for selective tax increases. Revenue enhancing got nowhere last fall except to help
heat up the debate over tax policy in general and the ERTA provisions. Attention
shifted again to the tax expenditure list. After all, with all those $266 billion of
tax expenditures up for the grabbing, why not relax on the painful process of budget
cuts?
It is this type of scenario that bothers some conservatives as much as the budget
deficits themselves. It's a scenario wherein the gloom and doom deficit forecasts from
Wall Street and elsewhere become self-fulfilling prophecies. If, as we emerge from the
recession, we are adrift in an acrimonious fight over taxes, and there is no firm
fiscal stance, all the more likely that the deficit will baloon, interest rates will
surge again and stagflation set in with a vengeance. This is certainly why the
President has been so reluctant to play the tax increase game. Economic management
will be much more difficult than last year when, even if his economic advisers were
much too optimistic on the near-term response to the budget program, the Administration
was well in control of events. Losing that control could have serious economic and
political consequences.

Material in Federal Tax Policy Memo may be reproduced freely. Credit to Tax Foundation, Incorporated would be appreciated.

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