The Zest for Tax Reform

The most fundamental dilemma that faced the leaders of the American Revolution and the framers of the U.S. Constitution was that of the relationship between the people and their government.

The dilemma persists today. It is the underlying issue behind the current understandable zest for tax reform. Do our leaders pursue that which is popular with the people in order to win favor at the next election or two? Or do they attempt to achieve the things that may be unpopular at the moment but will serve the nation well and strengthen it over time? What balance of forces best serves not only the people as individuals but also the economy, the institutions of government and the maintainence of national stability?

Tax rebellion . . . a second American revolution . . . fairness for Main Street. These slogans play well on television. There is frustration with the tax system, for good reason. What is fair to one taxpayer is a rip-off to another. But the consequences of tax reform go well beyond the bottom line of next April’s Form 1040. They deserve to be explored thoroughly before Congress and the Administration rush into anyone’s tax-reform program--be it Treasury I, the Reagan plan, Bradley-Gephardt or Kemp-Kasten.

Contrary to frequent claims that are made by conservatives, tax policy does, and must, guide social policy. The instructions contained on a single line of a tax form can determine just what sort of an industrial policy the nation pursues. They affect the distribution of wealth in America. They tell us what sort of relationship the federal establishment has to the states, counties and cities.

Will new money be channeled into housing, smokestack industries or Silicon Valley? Will the federal budget continue to be mired in astronomical debt? What will happen to the American dollar abroad and the nation’s export-import crisis? If employer-paid health insurance is taxed, what will be the effect on the insurance industry? Will it nudge the nation toward nationalized health benefits?

If the deduction for state and local taxes is repealed, will that hinder the ability of state and local government to provide the services needed to maintain a stable society, particularly in large urban states where the need is greatest?

All these questions need to be addressed.

The leaders of the American Revolution protested taxation, but that is not all that the revolution was about. And in 1787 the framers of the Constitution decided that the new American government, to survive, must be strong and be equipped with almost unlimited taxing powers. Lacking such authority, any government would lapse into atrophy and perish, Alexander Hamilton said. The philosophy of rebellion was not necessarily the philosophy of governing.

The rallying cry of a Second American Revolution is appealing. But the actual implementation of tax reform involves basic issues that will determine what sort of nation ours will be in the 21st Century. The spirit of the Revolution and the Constitutional Convention of 1787 cries out for a rational up-front debate on the course of the Republic.