WASHINGTON -- Like many medicines, the tax breaks proposed by the Bush administration to help nurse the economy back to health involve some temporary unpleasantness and annoying side effects.
President Bush's advisers hope these will be minimal -- though one substantial impact has already emerged.
Almost inevitably, when it became clear in late autumn that the president would need to propose an economic rescue package, speculation mounted that it probably would include an incentive for corporations to invest in modernization.
Mr. Bush proposed last week a 15 percent investment tax allowance for new equipment bought between Feb. 1 and Dec. 31.
The federal government repeatedly has provided such a temporary spur -- the latest version ended in 1986. As a result, business executives, expecting some kind of tax break this year, did the only rational thing, deferring modernization plans, and orders for manufactured durable goods tumbled at a 5 percent annual pace in December. That was the biggest monthly decline in more than a year.
"Companies were well aware of the proposal for tax relief in 1992, and this clearly seems to have caused a 'wait and see' reaction by business," said Michael P. Niemira, an economist at Mitsubishi Bank in New York. He said orders for January, too, "probably will remain depressed."
Then there are the various incentives for real estate, including the widely hailed 10 percent tax credit, up to $5,000, to encourage people who have not owned a home within the last three years to buy one. To get the credit, a sales contract must be signed this year, but the transaction may be completed as late as mid-1993.
Since the residential real estate market was slowly perking up for much of last year, aided by falling prices and interest rates, it is less clear that talk of an incentive has caused substantial deferrals.
Still, even though the plan would apply retroactively to home purchases, beginning Saturday, some buyers almost certainly will sit tight while Congress debates the president's proposal and while the real estate industry invents a way to turn the credit into an immediate benefit.
Such aid could help to meet a down payment, which for many first-time buyers is the biggest obstacle to a purchase.
Some real estate brokers say they fear a chilling effect on the market while people try to figure the financial possibilities.
One sign that homebuyers are paying close attention to tax implications came in reports from real estate brokers of wild scrambles by buyers to defer until this week closings that had been scheduled for late January.
The investment allowance and the homebuyer credit both expire at the end of the year, a feature intended to spur early action, and distortions in activity could prove to be mostly a matter of shifting the time at which transactions occur.
One specific proposal, to abolish the tax exemption for certain kinds of annuities, has inspired a frenzy of buying by people wanting to get such annuities before Congress can act.
But some economists contend that putting any major tax proposal on the table introduces such general uncertainty that the economy could suffer damage that would not necessarily be made up.
Until, say, June or July, when the final outlines of legislation become clear, the proposals could delay economic revival, said Sung Won Sohn, head of an advisory panel of the American Bankers Association.
"It will actually depress economic conditions in the meantime," said Mr. Sohn, chief economist for Norwest Corp. in Minneapolis. "It's doing the opposite of what's intended."
Many in Washington, however, think a clear view of the legislation could emerge as early as March or even late this month.
But Mr. Sohn's view, shared by other members of his panel, is that the administration plan invites an election-year bidding war that could balloon the budget deficit, thereby frightening bond investors.
Indeed, interest rates on high-quality securities have already climbed in recent weeks by two-fifths of a percentage point from their lows, while rates on conventional mortgages have bounced back to 9 percent from a low of 8.25 percent.
The lowest mortgage rates in two decades set off a stampede to refinance, but there is no doubt that the market is also factoring in the risk that the competition to lavish benefits on voters could get out of control, as it did in 1981.
Other economists, however, are not as worried as Mr. Sohn is.
Irwin L. Kellner, chief economist for Chemical Banking Corp., acknowledges that although orders for durable goods were doubtless delayed in advance of the Bush plan, the economy should be little harmed either in coming weeks or for the rest of the year.
That is because business activity is weak and because of broad sympathy on Capitol Hill for many, perhaps most, of the president's proposals.
"It's not all one-sided" politically, Mr. Kellner said. "There's probably enough for both parties to like," which would keep legislative uncertainty to a minimum.