Close Call

Something is not always better than nothing. A head cold is not better than no head cold. But in the case of tax reform, the House Ways and Means Committee bill is better than nothing--meaning in this instance the present tax system. It is a close call, as illustrated by the sharp divisions within the corporate world concerning the plan. General Motors and IBM support it. Ford and Texas Instruments oppose it.

On balance, the scale tips slightly in favor of the plan, although it falls far short of anyone’s ideal of tax reform. The full House of Representatives should pass the bill before adjourning this month, if for no other reason than to give the Senate a reasonable chance to consider the issue.

That may happen only if the bill gets more than token support from the White House. If President Reagan really wants a tax bill, he will need to put his persuasive skills to work on reluctant House Republicans.

During the past two months the 36-member committee dominated by Democrats made a number of changes in the plan submitted to Congress by the President earlier this year. Most were for the better. Specifically, the committee made the measure more equitable by adding a fourth tax bracket of 38% for families with taxable income of more than $100,000 (the President’s plan has three brackets, with a top rate of 35%); it adjusted the personal exemption and standard deduction to give more relief to low-income taxpayers relative to the wealthy, and it retained the deduction for state and local taxes.

The committee adopted a strong minimum tax to correct a most grievous flaw in the present system--the ability of some wealthy individuals and large corporations to escape the payment of a fair share of taxes, or any taxes at all. To a significant degree, the target of fairness is met.

So much for good-news highlights.

Interest groups had their day during the committee’s negotiations, however. The realtors managed to retain the deductibility of mortgage interest on second homes. The 1,362-page bill is crammed with other special new breaks for a variety of businesses and groups. Some illogical features of the bill would perpetuate another major shortcoming of the present structure: It would continue to encourage consumer credit spending at a dangerous level while discouraging personal savings.

To finance the benefits for lower and middle-income Americans, the committee shifted billions onto business and industry. The U.S. Chamber of Commerce and the National Assn. of Manufacturers claim that the change will stifle economic growth. But no one knows for sure. Economists predicted that the President’s 1981 tax cut would stimulate savings and investment. In fact, savings declined.

The problem is not so much a lack of available investment funds, but that distortions in the present tax structure divert capital into some industries and not to others for the wrong reason--for the sake of tax sheltering rather than long-term productive output and earnings. Some of those distortions would be corrected.

There are many things that the Ways and Means Committee bill will not do. It will not greatly simplify the tax system. Many tax forms will be even more complex. It will not solve the budget or trade-deficit problem. It will not, in fact, raise enough money to meet national needs even if it is possible to cut back on the defense buildup.

A flaw in both the Reagan and the House plans is that they attempt to buy political favor with a new round of individual tax cuts when the nation’s true need is more revenue. Indeed, the program really is tax revision and not reform. From its inception, the plan never proposed a fundamental change in the way in which the United States taxes its wealth.

The corporate world has a legitimate complaint that Congress tinkers so much with the tax system that it has become impossible to develop sound long-range planning. Consistency should become a stronger element in our tax system. Still, there will be a need for more tax shifts--upward--when the national leadership finally decides to take decisive action on the budget deficit. The passage of this bill must not be used as an excuse for avoiding that issue.

Despite all the drawbacks, the matter of equity in the tax system is too important to allow this opportunity to pass. Let the House pass the bill now and require the Senate to act quickly on it next year, correcting as many flaws as possible, or drop the matter until true reform can be achieved.