Tax Reform Act May Not Be Perfect but It Does Bring Some Positive Changes

The Jan. 31 column by John V. Tunney and Gary Iskowitz (“Reform Has Led to a Taxpayer’s Nightmare: In the Name of ‘Simplification,’ Tax Code Was Made Less Fair--and Far More Complicated”) comes from a long and now familiar line of writings criticizing tax reform. Both before and since its passage, tax reform has been subjected to all manner of doom and gloom predictions, much of it wishful thinking.

An examination of the column reveals numerous distortions and inaccuracies. Initially, however, some very basic points that the anti-tax reform authors failed to relate to Times readers about the new tax law need to be highlighted.

First, four out of five individual taxpayers are going to pay less in taxes under the Tax Reform Act of 1986 than they did under the old law. The new tax code removes some 6 million working poor from the tax rolls altogether while subjecting other taxpayers to a simpler, dramatically lower, two-rate structure as opposed to the previous high, multirate structure. The new rates are lower than they have been in almost 60 years.

Moreover, both the personal exemption and the standard deduction have been raised. The impact of these changes is powerful--for most taxpayers the increase in the personal exemption and standard deduction more than make up for any of the reductions in tax preferences which existed under the old tax code.

Second, business of all types confront a more rational and efficient competitive marketplace, thanks to tax reform. As a result of tax reform’s basic trade-off--the exchange of special interest corporate tax preferences for substantially lower tax rates--many businesses are paying federal taxes at lower effective rates than at any time in recent memory. The clear net effect is that they are now more competitive and better able to retain earnings for further growth and investment that, in turn, creates new jobs.

Space limitations preclude answering each allegation made by Tunney and Iskowitz even though some, such as their claim about the taxation of Social Security benefits (which did not result from the 1986 Act) or their claim that 10 million taxpayers will be subject to new interest reporting requirements (the IRS says 900,000) have no merit at all.

Few laws achieve perfection. I do not claim that the 1986 act does. However, Congress and the President had to take steps to correct the blatant unfairness of prior law and to do so with the well-being of taxpayers and the American economy in mind. Over time, I am confident that the 1886 act will be judged a major improvement to our income tax system.

ROBERT T. MATSUI

Washington

The writer is a Democratic Congressman from Sacramento.