Reformer Would Iron Out Tax Wrinkles : Revenue: O.C. man wants to replace complex state system with a flat 2 1/2% levy on all income.

Like many Americans, Roland Boucher has long been irked and befuddled by the weblike complexity of the California income tax code. But while the rest of us merely groan and mail off our returns every April 15, this Orange County retiree wants to change the system.

Along with two other, like-minded reformers, Boucher is trying to inspire what could become California’s next great tax revolt. Drawn together by Ross Perot’s unsuccessful presidential quest, the three have recruited an army of 1,500 volunteers to help qualify a proposition for the 1996 statewide ballot that would dramatically simplify the tax code.

Calling themselves United Californians for Tax Reform and operating out of a cramped office near Orange County’s John Wayne Airport, the reformers propose that the state adopt a “flat tax” at 2 1/2% of a worker’s annual income. That’s the equivalent of one hour’s wages each week (the group’s motto: “An hour a week is all Sacramento gets to keep”) and is a fraction of current state income tax rates, which rise as high as 11%.

The group is hardly alone in it’s dogged pursuit of the perfect flat tax. The concept has been embraced by politicians as disparate as Edmund G. (Jerry) Brown Jr. and Bruce Herschensohn. In Washington, Rep. Dick Armey (R-Tex.) and several other congressmen are pushing various versions of a federal flat tax these days. Closer to home, Reagan-era economist Arthur Laffer has been busy drafting a flat tax initiative of his own for the 1996 statewide ballot.

In each case, simplicity is a paramount part of the sales pitch. United Californians for Tax Reform boasts that its flat tax proposal is so uncomplicated that returns would be filed on postcard-sized forms, not the current maze of returns, rate schedules and indecipherable instructions.

“I think there’s great populist appeal in the idea of a simplified tax form,” said Steve Hayward, research director at Pacific Research Institute, a conservative think tank in San Francisco. “This could become one of the political ideas of the 1990s.”

While the stated purpose is not to cut taxes, boosters suggest that a streamlined tax code would give the economy a boost. The cost of tax preparers, accountants and attorneys would be a thing of the past. Investors, meanwhile, could focus on economic considerations rather than the art of avoiding taxes.

The concept of a flat tax has been embraced by many conservatives, but most Democrats remain unconvinced. Opponents argue that flat taxes favor the rich, who stand to gain with lowered rates. Moreover, critics suggest that the flat tax would limit government’s ability to handle the inevitable emergency.

“It’s a can of worms,” said state Sen. Leroy Greene (D-Carmichael), chairman of the Senate Revenue and Taxation Committee. “They’re saying we know everything that’s going to happen, every cost to the state, and that’s not the case. What about the Medfly, the occasional riot, earthquakes? Throw in the cost of a deep freeze or two. Have they figured that into the equation?”

Greene also worries that trying to revamp the state tax system via the initiative process is an exercise fraught with peril. Instead of going through “the crucible” of countless legislative hearings before experts on the subject, he said, the initiatives are the product of only a few minds--and once in place, they are harder to correct. “The odds are,” Greene said, “they got it wrong.”

Boucher and others, however, figure they’re on the right track.

A review by the state Legislative Analyst concluded that the proposal put forth by United Californians for Tax Reform could cost $179 million each year in lost revenue. But the group insists that sort of revenue loss--roughly 1% of the more than $16 billion in income taxes now collected by the state--would hardly bankrupt California.

To help ease the transition from the status quo, an additional 2 1/2% tax would be assessed for the first five years on all individual annual income exceeding $52,000. Moreover, the group argues that a simplified tax system would spur enough economic growth to offset any shortfall.

Boucher contends that the flat tax also would help squelch the endless political shenanigans in Sacramento, where lawmakers swayed by special interest campaign contributions have created a tax code with more loopholes than Swiss cheese. Moreover, a single tax for all would provide less incentive for individual taxpayers to cheat.

“We’ve made a nightmare out of this thing over a 70-year period and it’s time to fix it,” declared Boucher, a former aerospace manager who became frustrated with the Byzantine state and federal tax system after he launched his own business in the 1970s selling radio-controlled toy cars. “Every person making an equal income ought to pay equal taxes. That means no deductions, credits, exemptions. Nothing.”

He and his cohorts--Paul Arndt, who worked with Boucher at Hughes Aircraft and is now retired in Leisure World, and real estate manager Charles Alvord--hope they can spark a revolution that will spread across the United States.

But, so far, they’re having a rough time just in California.

Despite the big corps of volunteers and a snappy phone number, (800) 540-FLAT, United Californians for Tax Reform has collected only 50,000 signatures for the measure, far short of the 376,000 they’ll need by the end of September to qualify for the ballot.

Meanwhile, the group is short on cash, and no politicians have come forward to offer money or help. They also haven’t even been able to get an endorsement or much assistance from United We Stand, the grass-roots group formed by Perot followers after the 1992 presidential race.

“We’ve been ignored,” lamented Boucher. “We have no prior political history. Everyone is saying, ‘Who the hell are you?’ ”

Even some sympathetic politicians are staying away. Assemblyman Curt Pringle (R-Garden Grove) supports the concept of flat taxes, but doesn’t like the group’s insistence on absolutely no deductions.

“There are some deductions that are vital to maintain for the economic and public good,” Pringle said. “The two I’m concerned about are charitable and mortgage deductions. It’s the right thing to encourage people to give to charity. And it’s the American dream to own a home. We should encourage that in tax policy.”

Even if they don’t make this year’s deadline for gathering signatures, Boucher and the rest have time on their side before 1996 and have vowed to take up the cause again next year.

If they make the ballot, the plan would likely end up in direct competition with an alternative flat-tax proposal being sculpted by Laffer, the economist who helped inspire Reaganomics with his “Laffer Curve” and other principles.

Laffer’s idea, which is similar to the proposal pushed by former California Gov. Brown during the 1992 presidential race, is to eliminate all taxes--everything from sales and property taxes to levies on business and income--and replace them with a flat tax that would be the same for individuals and business.

The proposal is still being tinkered with, but the idea is to ensure that taxes collected by state and local government remain at 10.71% of the personal income of California residents. Laffer’s plan also allows a few exemptions--donations to charities, mortgage interest or rent payments, social security and disability income.

“This is not a tax cut,” Laffer said. “This is just readjusting taxes to make them efficient, so people don’t spend all their time on accountants or lawyers.”

While the Orange County group is struggling to collect signatures, Laffer has joined forces with an old hand at state ballot measures--People’s Advocate Inc., the direct mail group created by the late Paul Gann, co-author of Proposition 13. Laffer said more than $400,000 has been raised toward the signature-gathering effort, which has yet to begin.

Boucher, for one, is quick to criticize Laffer’s proposal. He worries that it would give lawmakers in Sacramento too much power to determine how much revenue is returned to cities and counties. He doesn’t like its deductions. And he hates the nature of its support.

“I notice it’s being backed by people with money in their pockets,” he said. “They’re not the average Joe. That makes me wonder about it.”

Flat-Lining the Tax Code

The flat-tax proposal would change how state income taxes are paid and the amounts collected. Main provisions of the flat tax proposal and scenarios for three income levels:

Provisions

* Replaces present rate, which ranges up to 11%, with a uniform 2.5% rate.

* Applies to all personal income.

* Allows no deductions, no exemptions and no tax credits.

* Deducts state income taxes from wages, as Social Security is now deducted.

* Replaces present form with a postcard-size form with just 10 lines.

* Indexes capital gains held more than three years against inflation.

* Applies a 2.5% surcharge on yearly income exceeding $52,000 for first five years.

* Allows extension of surcharge only by two-thirds vote of Legislature, without modification, and in five-year increments.

Three hypothetical examples of how the flat-tax proposal would pencil out for various income levels:

INCOME 1. Wages $25,000 $60,000 $125,000 2. Interest/dividends 0 5,000 10,000 3. Sale of capital assets 0 0 5,000 4. Other 0 0 5,000 5. Total $25,000 $65,000 $145,000 TAXES 6. Baseline tax $625 $1,625 $3,625 7. Surcharge 0 325 2,325 8. Total tax 625 1,950 5,950 9. Tax withheld (from W-2) 625 1,700 4,950 10. Tax due $0 $250 $1,000

Source: United Californians for Tax Reform