Armey Pitches Flat Tax, $40 Billion in Cuts : Budget: House leader says a 17% rate for all would be fairer and easier. He fails to detail trims, but Treasury chief says plan requires deeper ones.

House Majority Leader Dick Armey (R-Tex.) said Sunday that $40 billion a year in federal spending cuts would be required to offset the loss of revenue from a “flat tax” proposal he plans to introduce.

But Armey said his approach to overhauling the federal income tax--imposing a 17% rate for everyone--would be more fair and less burdensome to taxpayers who are upset with the complexity of the current system.

Armey also predicted during an appearance on ABC-TV’s “This Week With David Brinkley” that House Republicans can win enough support from Democrats to approve a balanced-budget amendment to the Constitution, along with a provision preventing Congress from raising new taxes without a 60% majority vote.

However, the initiative’s chances for success are considered slimmer in the Senate. That expectation was underscored by Sen. Nancy Landon Kassebaum (R-Kan.), who on Sunday reiterated her reluctance to embrace the proposal.

“The balanced-budget amendment isn’t going to reduce the deficit by one cent,” she said on NBC-TV’s “Meet the Press.” “. . . But I also realize that somehow it may be like (the) Prohibition amendment. We may have to just get it out of our system. Prohibition didn’t stop drinking.”

Kassebaum, who chairs the Senate Labor and Human Resources Committee, was joined on the program by Labor Secretary Robert B. Reich, who said the balanced-budget amendment is a “gimmick.” Reich indicated that a balanced-budget requirement would limit the federal government’s ability to stimulate the economy in recessionary times.

By embracing a flat tax, Armey is promoting an idea espoused during the 1992 Democratic presidential primaries by former California Gov. Edmund G. (Jerry) Brown Jr. And Armey, as did Brown, is encountering criticism that the flat tax would worsen the budget deficit while providing the greatest advantage to those who earn more than $200,000 a year.

Treasury Secretary Robert E. Rubin said his department estimates that Armey’s plan would cost about $180 billion a year in lost tax revenue.

The lost revenue, Rubin said, would overwhelm any savings benefit from a flat tax.

Full details of what Armey intends to propose, including what areas of spending he would cut by $40 billion per year, have not been made public. He said Sunday that the plan exempts capital gains, dividends and interest earned from savings from the income tax--and abolishes the deduction for interest paid on home mortgages.

“There will be a big lobbying effort against ending the mortgage deduction,” Armey predicted, adding that he believes the tax savings enjoyed by individuals would serve to stimulate the economy.

“I think home ownership will go up under the flat tax,” he said.