Tax Reform: a New Beginning

Call it a new beginning as the House Ways and Means Committee goes about the difficult task of drafting a federal tax-reform bill. The Constitution delegated this responsibility to the House of Representatives, since its diverse membership reflected all segments of the population. Indeed, the 36-member committee mirrors every geographic area of the country, every shade of political ideology and, yes, every special interest.

The committee will use President Reagan’s tax program as the framework for its discussions. But the plan contains serious flaws, and the committee must make significant changes if it is to produce a tax system that is less cumbersome, that does not aggravate the nation’s deficit and trade problems and, above all, that is equitable.

Meanwhile, the President continues his travels around the country in an attempt to rally the people to a new American tax revolution. But it is obvious that discontent with the present system has not reached rebellion fever.

The Administration has signaled Congress that certain features of the Reagan plan cannot be compromised. But there will be no tax reform unless all sides approach the task with a willingness to cooperate, compromise and be realistic about what can be achieved.

When he introduced the plan last May, the President said that its key features were fairness, growth and simplicity.

The plan does not meet many peoples’ tests of fairness. It is unduly generous with the wealthy, who already have benefited substantially from Administration tax policy. It is no wonder that major segments of the public are skeptical when they hear that taxpayers earning $200,000 and more would get an average cut of 14.3%. Reductions for the poor sound good in percentage terms, but amount to little in real dollars saved.

The promise of economic growth is unproved. It seems unlikely that benefits from the tax plan would have a significant effect on the economy when balanced against the cumulative negative forces of massive federal deficit spending and an alarming trade imbalance.

Simplicity is a worthy goal this year, or any year. But simplicity alone does not justify the adoption of a tax-reform plan that contains inequities.

The Republic will not fall if Congress produces no tax bill by Christmas. As Senate Majority Leader Bob Dole (R-Kan.) said, “We’re for a tax-reform bill now, and we’ll be for one next year--maybe even stronger.”

Among the changes that Congress must consider are a fourth, higher, tax bracket; retention of a partial deduction for state and local taxes, and adjustment of the $2,000 personal exemption so that it provides real tax assistance for low-income Americans relative to the rich. All these features would cost money, of course, and additional revenue would have to be raised elsewhere within the tax program. But where?

This in fact may be the basic flaw in the Reagan plan: It attempts to promise too much tax relief to too many segments of society when the nation’s most critical need is to raise more revenue to battle the growing crisis of the budget deficit.

To a large extent the national tax program shapes the type of federal system that we have, balancing legitimate national needs against political desires. When the President visited Concord, N.H., last week he vowed to stick with his economic policies “until the federal government looks a little more like New Hampshire.”

New Hampshire has one of the nation’s most regressive tax systems, under which the poor pay a far greater share of their income than the wealthy. Consequently, New Hampshire provides its citizens with mediocre public services. This is hardly a model for the federal government to emulate.