Cut First, Reform Later

Everybody was talking tax cut, and few more emphatically than the President's Advisory Committee on Labor-Management Policy, a 21-member group including Labor Secretary Willard Wirtz and Commerce Secretary Luther Hodges. Said the committee last week: "The U.S. can and must improve its recent record of economic progress. Economic policy should be directed at strengthening the expansionary powers of the economy. Our objective should be twofold: in the short run we must increase total demand for both consumption and investment; in the long run we must achieve a more rapid rate of growth of our productivity capacity. The main tool for promoting our economic objectives in 1963 should be a prompt and significant reduction in income tax rates."

So far, so good. But how big should the tax cut be? The committee suggested $10 billion--which seemed unreasonably large, considering that the reduction would come on the heels of a fiscal 1963 budget deficit estimated at $7.8 billion. The committee recognized that such a cut probably would lead to "appreciable deficits in the budget in the near future," but contended that "over the longer run, it may well generate increased tax revenues."

Crucial to the question of a tax cut is the issue of whether it should be tied in with overall tax reform. On this the committee said that "thorough review and revision of the tax system should be undertaken promptly.'' But, significantly, it added: "This should not be permitted to postpone action on the urgently needed reduction in tax rates."

At his news conference. President Kennedy was not yet ready with one of his famous "judgments" on how deep a cut and how serious a reform there should be. But the Administration has, in fact, tried out a two-step tax package on House Ways and Means Chairman Wilbur Mills. The plan calls for a big tax cut, in Step i. to be retroactive to Jan. 1, 1963. The second step, to be effective one year later, would include a further cut and overall tax reforms. Both steps would have to be approved in one bill, thus preventing Congress from approving a tax cut and then ignoring tax reform.

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