Tax Reform Game Is On

Republicans in Congress want to hit the delete button on the U.S. tax code, all 10,000 sometimes bewildering pages of it. Support is building for legislation to abolish the law by Dec. 31, 2001, and with it the Internal Revenue Service as it is now constituted. What would replace the statutes that raise revenues for government and influence millions of decisions on business and personal investments, home purchases and charitable giving? Right now, nothing. The proposed Tax Code Termination Act simply requires a replacement law to be ready by July 1, 2001. The fun would come in deciding what it says.

Senate Majority Leader Trent Lott is candid about this odd approach. Only the pressure of a deadline, he says, will assure that reform happens. President Clinton decries this thinking as irresponsible. While acknowledging there’s always room for improvement, he credits the existing tax system with fostering growth, jobs, low interest rates and impending budget surpluses. Clinton says, not unreasonably, that an alternative tax system ought to be agreed upon before the existing one is erased.

Republicans in fact are playing a shrewd political game. The tax code is complex, sometimes contradictory, often incomprehensible, forcing taxpayers to spend billions each year for help in understanding it. And in the affections of most Americans, the IRS probably ranks somewhere near Saddam Hussein. Rep. Christopher Cox (R-Newport Beach), chairman of the House Policy Committee, reflects the GOP position in seeking “dramatic simplification and rate reductions.” As for what would go in its place, Republicans are divided. Some want a flat tax on income, others favor a form of national sales tax from which some purchases--food and health care, for example--would be exempt. Under some versions of these proposals many poorer and lower-middle-class families would escape most taxes, while the affluent would find their taxes reduced, often significantly.

A flat tax and a federal sales tax are not the only options. Certainly congressional Democrats would insist that some progressivity remain in any new tax code, just as they would try to make sure that revenues remain high enough to fund most of the programs they traditionally favor. But if no bipartisan consensus on a new law were reached, the views of whatever party controlled Congress and the White House would prevail. The GOP plainly expects to be that party.

Clinton loosed some good shots in criticizing the Republicans’ plan: For example, how could any public- or private-sector economic planning take place in a climate of wild uncertainty over a new tax code? But in speaking up for the current system the president also risks being charged with embracing a deeply flawed law. Clearly, change is needed. The White House would be wise to begin working seriously with both parties in Congress on a new tax code that is not freighted with special-interest favors and is equitable to different income groups. In other words, something quite unlike the current law.