Reagan Backs Off His Stand Against Increase in Taxes : Aides Will Meet With Leaders of Congress on Debt

WASHINGTON — President Reagan, seeking to restore confidence in the nation’s financial markets, Thursday abandoned his vow never to raise taxes and ordered his top aides to work with Congress in developing a deficit-reduction plan that “keeps spending and taxes as low as possible.”

He promised that “I’m putting everything on the table with the exception of Social Security with no other preconditions, and I call on Congress to do the same.”

With Democrats and some Republicans in Congress already pressing for a tax increase as a means of reducing the deficit, the President’s statement virtually assures passage of at least a modest tax increase in the near future.

Shows Concern for Markets

Reagan, whose earlier low-key response to the plummeting stock markets had been widely criticized, expressed concern about the volatility of the markets during a nationally televised White House press conference, the first he has held since March 19.

“We shouldn’t assume the stock market’s excess volatility is over,” he said. “However, it does appear that the system is working, so while there remains cause for concern, there is also cause for action.”

He said he would take the following steps in the wake of Monday’s 508-point plunge in the Dow Jones industrial average:

--Meet with bipartisan leaders of Congress to arrange a procedure for deficit-reduction discussions “that will be productive and constructive.”

--Appoint Treasury Secretary James A. Baker III, Chief of Staff Howard H. Baker Jr. and Budget Director James C. Miller III to lead the White House negotiating team and call on the Senate and House leades to appoint their representatives so that negotiations can begin immediately.

--Call on members of Congress to abandon pending legislation to protect American markets from foreign products.

--Appoint a three-member task force headed by former Sen. Nicholas Brady (R-N. J.), now chairman of the Dillon Read investment banking firm, to examine the stock market procedures over the next 30 to 60 days and make recommendations for any necessary changes.

“This situation requires that all sides make a contribution to the process if it is to succeed and a package be developed that keeps taxes and spending as low as possible,” Reagan declared.

Before the press conference, investment analysts and other financial experts said it was imperative that Reagan make a strong non-partisan statement calling for action to restore confidence in the markets.

An open, non-political statement, said Arthur Levitt, chairman of the American Stock Exchange, “would do more to restore confidence than anything else I know of.”

Silent on Details

The President, while emphasizing his willingness to negotiate with the Democratic Congress about the budget deficit, refused to discuss possible tax and spending compromises. Recalling his days as leader of the Screen Actors Guild, the President said: “You don’t talk in advance about strategy or what you will or won’t do, or there’s no point in having negotiations.”

Any tax or other source of new revenues “must not be something that has an adverse effect on the economy,” the President said. Some taxes, such as the income tax, have a more potent impact on the economy, he said. “I’m going to do what I think is absolutely necessary for the economy of the United States,” he insisted. “And I still happen to believe that taxing is . . . what brought on the troubles that we had when I came here.”

Senate Democratic Leader Robert C. Byrd Jr. of West Virginia said Thursday night that he was “very encouraged that the President really is going to work with us without any preconditions as to options . . . with that one exception--Social Security.”

Talking with reporters at the Senate after Reagan’s press conference, Byrd said: “The President indicated to me in that conference that he is flexible and that he sincerely wants to negotiate and achieve a package we can all support.”

Byrd said it “took considerable courage and statesmanship (on Reagan’s part) in view of the past statements the President has made” about not raising taxes.

Seen as Alternative

Reagan, by agreeing to consider taxes as part of a deficit-reduction package, opened the way to finding an alternative to the $23 billion in automatic spending cuts that would be imposed next month under the newly revised Gramm-Rudman budget law. Cuts of equal depth will be imposed on most domestic and defense programs if Congress does not enact a $23-billion deficit-reduction bill by Nov. 20.

But such a budget package is still not assured. Despite the relatively small tax hike that would be required, Congress and the Administration are likely to find it difficult to agree on specific tax increases that will both satisfy Reagan’s convictions and win support among Democrats for a tax hike that will not hit middle- and low-income families too hard.

Reagan announced that the deficit for fiscal 1987, which ended on Sept. 30, was $148 billion, down from the most recent estimate of $155 billion. The fiscal 1986 deficit, by contrast, was $221 billion.

Large deficits, most analysts contend, present a serious economic problem only over the long term, by depleting the funds available for private investment and forcing interest rates upward. The immediate benefit from a deficit-reduction package is the hope that it would assure investors that interest rates can remain low.

In the current shaky financial environment, though, Congress and the Administration will have to be careful to avoid a sudden increase in the tax burden or sharp spending cuts that might depress consumer spending so much that the economy would grind to a halt.

The most important goal, analysts contend, is to convince the public that the deficit will continue to shrink in the years ahead, reducing the government’s borrowing needs and opening the way for additional productive investments.

Although Reagan’s willingness to discuss taxes represented a concession to Congress, he set up a point of possible confrontation with congressional negotiators by complaining that experts in his Administration work extremely hard to put together his annual budget proposals, only to have them discarded by members of Congress with little knowledge of federal programs.

“I think it’s kind of a stupid setup,” he said.

For the second time this week, the President also denied responsibility for the nation’s record budget deficits and laid the blame at Congress’ door.

“For six years, I’ve repeatedly asked for less money, and they’ve turned around and given me more to spend,” he said.

‘Put Aside Finger-Pointing’

Senate Majority Leader Byrd declined to criticize that comment. “I think the President did very well,” Byrd said. “It’s very important we put aside the finger-pointing. It’s not the time for that.”

When asked about the threat that the stock market crash is the harbinger of a recession, the President replied: “The one thing . . . that could possibly bring about a recession would be if enough people, without understanding the situation, panicked and decided to put off buying things.”

The stock market decline was “a long-overdue correction,” the President said. “What factors led to its getting to the panic stage, I don’t know.” He said he approved of the decision to shorten trading on the stock exchanges for two hours for the next few days.

But he insisted a recession was not inevitable. “This is, I think, purely a stock market thing,” he asserted. “There are no indicators out there of recession.”

The President praised major banks for making what he called “very wise” cuts this week in the prime rate that they use as benchmarks for many consumer and business loans.

When asked whether he favors more drastic economic steps--such as voluntary price reductions by merchants to boost consumer spending--Reagan laughed and said: “I think that’s up to them. But I know there are no sound signs of a deteriorating economy out there.”

Lauds Canadian Pact

Reagan praised the recent trade pact between Canadian and U.S. negotiators as “one of the foremost things that has happened” recently to encourage international trade. “You bet I’m behind it,” he said of the agreement, which needs the ratification of Congress and the Canadian Parliament.

On other issues, Reagan, responding to signs of internal dissent in his presidential commission on AIDS, said he is “hoping” the panel can recover sufficiently from the departure of the panel’s two top members in time to complete its report, “and I have to assume that they can.”

Citing representation on the panel from the fields of business, medicine and education, the President said “a wide variety of skills” are needed to combat “a very complex problem.”

Despite assertions that politics and ideological bickering to date have dominated federal efforts targeted at AIDS, Reagan asserted: “I’m still hopeful that we’ll learn something . . . (about) this terrible plague.”