Political Fight May Delay Tax Plan Until 1986

As President Reagan prepares to unveil his long-awaited income tax simplification proposal this month, Republicans and Democrats are girding for what looms as an unprecedented struggle to claim political credit on the same issue.

Whatever the specifics of the White House plan, many analysts expect the jockeying between its adherents and backers of two other reform measures--one sponsored by Democrats, the other by Republicans--to continue all this year, into 1986 and perhaps even beyond. Despite lofty declarations of support for the principle of bipartisan cooperation, some strategists in both camps see a chance to gain crucial political advantage at a time when both parties are at historic crossroads.

Promise of Lower Rates

Some Republicans are striving to use tax reform, with its promise of lower rates and fewer loopholes, to shed once and for all their image as a rich man’s party and to consolidate their 1984 election gains.

And some Democrats intend to use their advocacy of a fairer tax system to dispel their party’s stigma as a champion of special-interest groups and to help them regain political ascendancy.

Risks abound for both parties. “There are some Republicans who are horrified at the notion of abandoning their traditional supporters, and there are some Democrats who are horrified at the notion of abandoning theirs,” said Marcia Aronoff, aide to Sen. Bill Bradley of New Jersey, regarded by many fellow Democrats as the originator of the tax reform movement.

Today’s maneuvering represents a distinct departure from the past, when the parentage and political purposes of major proposals could be clearly traced to one party or the other.

The economic and social reforms of the New Deal and the Great Society, for example, were engineered by Democrats who sought to aid minority groups and the poor, who were traditionally loyal to the their party.

The tax cuts in the first year of Reagan’s presidency bore an unmistakable Republican label, mainly benefiting the longtime GOP constituencies of business and middle- and upper-income individuals.

Tax simplification, by contrast, has a mixed pedigree. Its progenitors reach from Bradley in the liberal wing of the Democratic Party to Rep. Jack Kemp of New York, a potential conservative contender for the Republican presidential nomination in 1988. In both parties, its proponents believe that they can use tax reform to seize political ground.

‘White-Collar Populism’

On the Republican side, Deputy Treasury Secretary Richard G. Darman views tax simplification as embodying the spirit of what he calls “white-collar populism.” Its enactment, Darman contends, would appeal to “the forgotten white-collar workers: the non-Yuppies, the ones who have made it to white-collar clothes but not to Yuppie power or position.”

Members of that growing class, he points out, cannot take advantage of the various deductions and loopholes in the current tax code. “Their interest in simplification,” he said, “is driven by resentment of the present system’s unfairness--their sense that others benefit from complexity where they do not.”

And on the Democratic side, Bradley, co-sponsor with Missouri Rep. Richard A. Gephardt of the party’s major entry in the tax simplification derby, believes that today’s tax loopholes shift investment decisions away from those that would be most productive to those that confer the greatest tax advantage. He regards the closing of loopholes as a way to spur economic expansion--and to help the Democrats resume their role as the party of prosperity.

Views Not Unanimous

Bradley said that if the Republicans, because of a reluctance to offend business interests, fail to launch far-reaching tax reform, “then it becomes the economic growth issue for Democrats for the next four years or longer, until it’s done.”

The views of Darman and Bradley are by no means unanimous within their parties. Analysts on both sides of the political fence are skeptical about the ultimate economic and political merits of the reform proposals advanced so far. And while most opinion polls show the public supports the idea of tax reform in general, they also report considerable taxpayer resistance to the removal of the specific loopholes from which particular individuals benefit.

“Tax simplification is what I call a very good issue for the first five minutes of a 30-minute political speech,” Republican pollster Lance Tarrance said. “But in terms of substance, the debate hasn’t yet reached the level where people fully understand its pros and cons.”

A Lost Opportunity

And yet, for all his doubts, Tarrance quickly added: “It’s an issue that we Republicans are not going to let Bradley and Gephardt go down in history as having instigated.”

Similarly, from the Democratic side, Sen. Gary Hart of Colorado, a likely 1988 presidential contender, said: “Tax reform is and ought to be a Democratic issue.” But he conceded that the Democrats lost an opportunity when their 1984 presidential nominee, Walter F. Mondale, refused to endorse the Bradley-Gephardt proposal.

With the announcement of Reagan’s own tax-simplification proposal imminent, Hart warned: “It seems to me we’ve got a limited period of time, maybe weeks or days, to somehow unite behind the issue.”

Underlying this eagerness to capture the tax reform issue, despite all of the uncertainties that surround it, is the sense of volatility within both parties in the wake of Reagan’s 1984 landslide.

Democrats, stunned by the defeat of a presidential candidate who represented their long-established values and goals, have been frantically searching for an issue to help them find a new identity.

As for the Republicans, though the 1984 elections bolstered their hopes of becoming the nation’s majority party, they concede that they have yet to achieve any such political realignment. And, mindful that they will no longer have Ronald Reagan to lead them in the 1988 elections, GOP strategists are seeking a new substantive thrust.

“Both parties are nervous as hell,” Norman Ornstein, American Enterprise Institute analyst, said.

Congressional gridlock over the budget deficit seems to have ruled out the possibility of significant program initiatives by either party, at least for the time being. Thus the prospect of tax reform looms as potentially the most rewarding political issue for both parties even if it means, as Ornstein said, “a leap into the unknown.”

But cashing in on that potential is likely to prove difficult. Interest groups in both parties are hotly opposed to many of the most commonly discussed changes. And, with the Democrats in control of the House, passage of sweeping reform would require something approaching a bipartisan consensus.

For the Democrats, many of whom fear that most of the credit for any tax reform bill enacted into law would automatically go to the President and his party, the incentives to reach an agreement with the Republicans are limited. “Sen. Bradley describes the President as the whale in the swimming pool,” Bradley aide Aronoff said. “He dominates any story.”

The House Ways and Means Committee chairman, Dan Rostenkowski (D-Ill.), whose panel will hold hearings on tax reform, said Democrats do not have much choice for now other than to cooperate with Reagan because they cannot afford to have the President say of them: “All they want to do is talk about reform. But when it comes down to bottom line, they are not ready to support it.”

If Reagan’s proposal strays too far from the principles of reform, Rostenkowski added, the Democrats might push a bill of their own. “That’s a possibility,” he said, “a damn good possibility.”

But, at present, it is no more than that. Though Bradley and Gephardt introduced their “fair tax” proposal two years ago, the party leadership has yet to unite behind it or any other reform measure. And differences over policy may be aggravated by personal ambitions and rivalries.

House Democratic leader Jim Wright of Texas has withheld support for tax simplification while boosting the idea of a minimum tax for corporations as a way to shrink the deficit. But reform proponents contend that Wright is mainly concerned with protecting tax loopholes for his state’s oil and gas industry and with asserting himself as a partisan leader ready to succeed House Speaker Thomas P. (Tip) O’Neill Jr. of Massachusetts.

Rostenkowski, though declaring himself in favor of tax reform, has not endorsed the Bradley-Gephardt plan. Some Democrats fear that Rostenkowski will be friendlier to the White House point of view than to the bill co-sponsored by his colleague, Gephardt, whom a Democratic lobbyist said Rostenkowski regards as “an uppity young Democrat.”

As for Gephardt himself, some congressional sources believe that his role in the tax reform drive will be colored by his reputed ambition to seek the presidency in 1988.

And presidential politics also clouds tax reform’s prospects for Republicans. Although Kemp of New York, who is considered likely to seek the 1988 GOP presidential nomination, and Sen. Bob Kasten of Wisconsin introduced a Republican version of tax simplification early this year, the White House chose to produce its own measure rather than back theirs.

Some political pros believe that the White House, eager to protect the presidential prospects of Vice President George Bush, would be reluctant to negotiate an agreement with Kemp that would allow him to take much of the credit for tax reform.

“My guess is that the White House will let Bush get close to their tax reform proposal if it looks good and Bush wants to get close to it,” one veteran lobbyist said. “By the same token, they will try to keep Kemp away from it.”

Presidential politics aside, some Republicans question whether tax reform will really bring their party the benefits its boosters claim. Former Rep. Barber B. Conable Jr. of New York, longtime top-ranking Republican member of the Ways and Means Committee, contended that, while the proposed reforms would probably please lower-income taxpayers who do not itemize their deductions, it would antagonize those who do, most of them in the middle class.

“I personally think that kind of politics is dead wrong for us,” he said, “because I think the Republican Party is generally a middle-class party.”

Although Conable conceded that most taxpayers do not itemize deductions, he called that statistic misleading. “Those who do itemize are mostly joint taxpayers, husband and wife, and they have a political clout far beyond their numbers because they are generally the stable backbone of the community and of the Republican Party,” he said.

Low-Income Voters

And in the long run, Conable complained, pleasing low-income voters will not do the Republicans much good. “The President thinks he can bring about a realignment by bringing over a lot of people who generally look to government for assistance,” he said. “But I don’t think Republicans are ever going to be as good at promising special-interest benefits as Democrats.”

In this complicated and volatile political environment, some analysts believe that, for the foreseeable future, tax reform has a better chance of becoming a hot campaign issue than it does of becoming law.