Chorus Builds for Radical Remake of U.S. Tax Policy : Reform: ‘Flat’ levy, even end of the IRS is envisioned. But current code still has staunch supporters.

The climactic House vote on a sweeping package of tax cuts Wednesday may be just the prelude to a more dramatic shift in tax policy now on the horizon. An influential, growing movement that includes current and former members of Congress and presidential candidates seeks a radical overhaul of the nation’s tax code.

Their proposals, which reflect widespread unhappiness with a sprawling, costly national government and the painfully complex set of tax rules that help finance it, vary from a national sales tax--and elimination of the Internal Revenue Service--to a simple “flat” tax and other reforms.

“We can keep patching the system but there’s nothing you can do to make the income tax good,” declared Rep. Bill Archer (R-Tex.), chairman of the House Ways and Means Committee. “Ultimately we want to rethink the whole way we tax.”

That is likely to prove a difficult, contentious process. Indeed, the current tax code is not an accident. In many ways it reflects the desires of a plethora of interests that benefit from one provision or another, ranging from corporations that enjoy certain write-offs to investors to homeowners to charities and other organizations whose very lifeblood comes in the form of a tax-deductible contribution. Some of these groups likely will fight any changes vigorously.

“It takes time, obviously, to build a consensus, to get people over their fear of what life after reform will be like,” cautioned Stephen R. Corrick, a tax partner in Arthur Andersen’s office of federal tax services in Washington. People wonder, he said: “Will I lose some of my wealth? Will I lose my business?”

Still, the early signs of an unusual effort to create a consensus for change are increasingly apparent.

Just this week, House Speaker Newt Gingrich (R-Ga.) and Senate Majority Leader Bob Dole (R-Kan.) announced a new commission headed by former Rep. Jack Kemp to promote a simpler and fairer tax code.

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Kemp is a longtime supporter of what is called a “flat” tax, in which virtually all deductions, exemptions, exceptions and bewildering fine print are erased. Instead, most taxpayers would pay a single, set rate based on a form that, advocates like to say, could fit on a postcard.

“We think the time is ripe” to push for a flat tax, Dole said, “as a replacement, not an add-on, to the present tax code.”

Sound radical? Others are pushing to eliminate the IRS altogether, dump the income tax and switch over to a national levy based on purchases, similar to a sales tax.

On Wednesday, as House members were facing off in debate over the $189-billion tax-cut bill, Sen. Richard G. Lugar of Indiana, a Republican presidential hopeful, was proposing to abolish the federal individual and corporate income taxes, as well as taxes on capital gains, gifts and inheritance. Instead, he called for a 17% national sales tax, intended to raise the same amount of income for the government.

“This means for every American the money you earn is yours,” said Lugar, who plans to formally declare his presidential bid later this month. “You may save it or you may spend it but the paycheck is bigger without the automatic income withholding deduction. You need not account for it, report it or hide it.”

Under his plan, Lugar said, the taxes could be collected by the states, allowing the IRS to be eliminated.

The rising wave of sentiment against the tax code has heartened some critics who lament its daunting complexity and seeming inequities. In addition, the current tax system is sometimes seen as harmful to the economy--undermining incentives to work, invest and save.

“We have an anti-growth, anti-investment tax system that is making us uncompetitive in the world economy,” said Stephen Moore, director of fiscal policy at the libertarian Cato Institute in Washington, adding that “no one in (his) right mind” would set out to create the tax code as it has evolved today.

While much of the push for an overhaul has come from Republicans, there is at least some Democratic support as well. House Minority Leader Richard A. Gephardt (D-Mo.) announced his interest in a flat tax earlier this year.

The move for reform is no juggernaut, however. In 1986, for example, a push for tax simplification ran into a wall of special interests. The law that ultimately emerged disappointed many who had hoped for a landmark move toward simplicity. Business lobbyists, whose clients may benefit from one esoteric section or another of the tax code, would also be certain to resist change.

There also are arguments against some of the proposals not based on self-interest.

Critics of a flat tax have long complained that in practice it would favor the wealthy and increase tax bills for many moderate-income taxpayers, although advocates maintain that these problems can be avoided if it is properly designed.

A national sales tax proposal also would face vehement opposition, both on economic and political grounds. Some experts do not like sales taxes because they tend to “cascade” through the economy, increasing prices at various stages of production. Also, many states rely on sales taxes and would presumably resist a similar federal levy.

“The last thing they want is the federal government taking over their revenue source,” said Diana Furchtgott-Roth, a tax specialist at the American Enterprise Institute.

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Politicians are conscious, however, that the public has an abiding dislike for the current tax code and the sentiment seems to be tangled up in the general cynicism toward big, costly government.

“A simplified tax system should be a cornerstone upon which our country ought to be built,” said Rep. John R. Kasich (R-Ohio), House Budget Committee chairman, in an interview Wednesday. It’s “doable,” he added, because Americans have “wanted it for years.”

Times staff writers Edwin Chen and James Risen contributed to this story.