Senate’s Lightning Bolt

Legislation rarely is forged by lightning bolt. Crafting national law normally is a painstaking process of evolution, particularly when Congress takes on the tax system. But the Senate Finance Committee became the Norse god Thor this week as it hammered out a drastic tax reform bill.

The happy result is that the spirit of tax reform has bold new life. Legions of lobbyists stood by, mouths agape, while the committee molded a plan similar in many respects to the widely-hailed Treasury Department plan of two years ago.

The catalyst seemed to be the way Chairman Bob Packwood (R-Ore.) seized on a two-tier individual tax rate, 15% and 27%. It was simple, alluring and irresistible. To balance the big cuts and retain corporate backing, the plan would eliminate most individual tax shelters and many deductions. For example, the committee would tax long-term capital gains as ordinary income.

Corporations fare better than in the House-passed plan, taking on a new tax burden of about $100 billion over the next five years compared with the House proposal of $144 billion. This should ease concerns that tax reform may inhibit the economy rather than stimulate it.

Certainly the proposal achieves a major objective by providing relief for poorer taxpayers. An estimated 6 million low-income Americans would disappear from the tax rolls. A family of four would have to earn $13,500 before paying anything.

Still, tax reform has a long way to go. The full Senate debate may be one of the monumental battles of recent times. The Senate’s final product then would have to be reconciled with the House version.

As the dust settles, some careful analysis is in order to determine just how good, and how equitable, the Senate committee plan may be.

The two-bracket rate is appealing, but what would it do to the still-valid concept of a progressive income tax system? A single taxpayer earning $17,600 would pay the same percentage rate as a millionaire. Would two tax brackets make calculating taxes simpler? That needs study

Selected industries, including timber, oil and natural gas, still would get special benefits. If these remain, can other businesses be denied as they marshal their forces for a new lobbying blitz? State and local sales taxes would no longer be deductible--a boon to five states, including Packwood’s Oregon, that do not impose a sales tax.

But there is no perfect tax system. For now, the Finance Committee deserves to bask in the glow of a rare, lightning-bolt performance.