Tax ‘Reform’ Proposals

Each of the past several years has seen major tax “reform” proposals announced with great fanfare. Not wanting to make any erroneous decisions, businesses have delayed plans for capital investment, put hiring and new product proposals on hold and generally slowed their activities while awaiting resolution of the uncertainty. So it is now.

Were it mere tinkering, the constant attempts to revise, adjust and amend would not be so troublesome. However, recent proposals have gone well beyond tinkering. The 1981 act was a massive tax reduction that was designed to favor capital investment in plant and equipment. That law succeeded, as Keynesian economic theory predicted that it would. The 1982 and 1984 tax acts represented a cutback in the benefits that were adopted by the 1981 act, but they were justified on the grounds of revenue-raising and fine-tuning of the excesses in the earlier law. Even so, the ink on the 1984 act was hardly dry before it was amended, and hundreds of Treasury regulations are awaited to tell us how it is to be interpreted.

While fairness, simplicity and evenhanded tax treatment have a noble ring, the truth is that our tax laws have long since passed from a neutral instrument for raising revenue into a device designed to encourage some forms of social and economic behavior and to discourage others.

There would be virtually no low-income housing in this country without the very favorable tax treatment afforded in Housing and Urban Development housing projects. Modernization of plant and equipment has been accelerated by liberal depreciation rules and investment tax credits. Homeownership and its accompanying political and social stability have been enhanced over the years by tax benefits that include the deductibility of state and local property taxes and mortgage interest. Each of these items is a “distortion” from an unbiased allocation of resources.

Repose is a quality of life that is much to be desired. With respect to our tax laws, repose is a quality to be cherished. We have had so little. What we need now is not another national debate on changes in the tax code but time to digest the massive changes brought about by the ‘81, ’83 and ’84 tax acts. Our business economy ought to be given an opportunity to run by one set of rules for more than 12 months in a row.

Despite the many claimed benefits for the Treasury’s proposals, it is time to say enough.

GARY J. COHEN

Los Angeles