Tax Code Haters Hope to Ride It Into the Sunset

Steve Forbes’ opponents for the Republican presidential nomination two years ago treated him like a crackpot when he declared: “You can’t tinker with the tax code. You can’t reform it. You must kill it, drive a stake through its heart, bury it and hope it never rises again to terrorize the American people.”

Now, all of a sudden, the idea of ditching the tax code has become Republican orthodoxy, outpacing the hopes even of its devotees. House and Senate GOP leaders have promised a vote this year on legislation to let the code expire at the end of 2001. Two top House Republicans have been crisscrossing the country to tout alternatives to the existing tax system. Forbes, back on the road with his own “tax code termination tour,” plans to launch a media blitz on the issue this week.

The idea is getting oxygen from the public’s fury toward the complexities of the tax code and the blunders of the Internal Revenue Service. It’s a new way to stir up the anti-government animus that helped bring Republicans to power in Congress in 1994. And it appeals particularly to the nation’s millions of small businessmen and women who are a core part of the GOP’s political base.

“It is a way to talk about getting government off people’s backs and out of their lives in a more credible and tangible way,” said Cleta Mitchell, who is coordinating a tax-reform petition drive by the National Federation of Independent Business, a small-business lobbying group.

What’s more, the idea gives Republicans a tax issue to rally around in an election year even though they seem to be oddly at sea about what kind of tax code they want instead. They cannot agree whether to propose a flat tax or a sales tax, whether to cut taxes on married couples or on capital gains.

“As a party, Republicans are so used to capitalizing on Democratic tax increases,” said GOP pollster Glen Bolger. “Now that we’re in power, unfortunately Democrats aren’t raising taxes, so now what part of the tax message do we run on?”

Not incidentally, the drive to deep-six the tax code puts President Clinton and his fellow Democrats in the position of defending the tax status quo. The movement has acquired so much momentum that Clinton felt compelled to respond this month with a speech denouncing the notion as “misguided, reckless and irresponsible.”

The idea is a simple one. Republicans are preparing to pass legislation this year that would set a Dec. 31, 2001, expiration date for the entire tax code. Between now and then, proponents say, Congress and the nation would debate what kind of system they want in its place.

The leading alternatives being discussed by Republicans are a flat tax, being pushed by House Majority Leader Dick Armey (R-Texas), and a national sales tax, whose leading proponent is House Ways and Means Committee Chairman Bill Archer (R-Texas). But there is nothing even approaching a party-wide consensus behind either proposal.

That schism is ignored by the scrap-the-code legislation, which is silent on what kind of alternative would be enacted. The legislation now has 153 co-sponsors in the House and 30 in the Senate. Gingrich has promised to bring the issue to a vote in the House, possibly in June, according to Rep. Steve Largent (R-Okla.), one of the proposal’s sponsors. Senate Majority Leader Trent Lott (R-Miss.) has promised to bring it up in the Senate and recently announced that similar but nonbinding language would be included in a budget measure coming up this month.

All that is enough to goad Clinton into action. “I think we have to take it seriously now so that the public won’t take it seriously later,” said Gene Sperling, director of Clinton’s National Economic Council.

Proponents of the measure said the tax code has become oppressively complex and unfair but that Congress will not even think about the root-and-branch overhaul it needs unless it faces an action-forcing deadline.

Critics countered by saying it is irresponsible and risky to vote to abolish the code before Congress decides what will replace it. Clinton argued that passage would create vast uncertainty about the tax code, potentially crippling long-range financial planning of businesses and families. Some Republicans agree, including the influential chairman of the Senate Finance Committee, William V. Roth Jr. (R-Del.).

“He shares everyone’s frustrations with the tax code, but he does have some concerns about the uncertainty that legislation to sunset the code would create without an alternative ready to go,” said Ginny Flynn, Roth’s spokeswoman.

An aide to one House Republican co-sponsor conceded that many complaints about the bill already have been lodged by Wall Street allies and big donors. “We got more than a few phone calls from people in New York saying it would create mass instability.”

No one expects the bill to become law this year. Even if it does clear Congress, Clinton is expected to veto it.

But Republicans are eager to bring the matter to a vote and then cast Democrats who oppose it as defenders of an unpopular status quo.

“Republicans rarely have an issue where not just the facts but emotion is on their side,” said Joel Rosenberg, communications director for Forbes. “Every day we get closer to April 15, the country is coming to focus on this issue. The president has put himself on the side of the cause of great anger and frustration.”

Forbes centered his campaign for the GOP presidential nomination in 1996 on his proposal to institute a flat tax. The idea drew heavy fire from other GOP candidates, including the eventual nominee, Bob Dole. Now, with his eye on a possible campaign in 2000, Forbes is still advocating the flat tax but has shifted his focus to the idea of having tax laws be subject to sunset clauses that would erase them from the books. He plans this week to launch a radio and television advertising campaign to push for legislation to terminate the tax code.

Ironically, GOP interest in a radical overhaul of the code was fueled, in part, by the 1997 tax cut bill that Republicans touted as one of the year’s biggest achievements. Whatever the merits of the tax cuts it contained--for capital gains, families with children and a variety of other categories--it made the tax code even more complex. The bill made 821 changes in the code, including lengthening the capital gains tax form and work sheet from 32 to 54 lines.

“Our members told us, ‘Do you know how much more complicated this is? Whatever savings we might have gotten will be offset by a ridiculous increase in complexity,’ ” said the independent business federation’s Mitchell, whose small-business constituents were intended to be among the principal beneficiaries of the bill.

In response, the organization last fall started a campaign to abolish the code and so far has collected 300,000 signed petitions that it plans to present to Congress later this year.

It is no accident that the small-business lobby is at the forefront of this issue. Probably no business sector is more hostile to the IRS and the tax code.

For one thing, tax analysts have said, the owners of the nation’s mom-and-pop commercial outfits tend to view their profits with the pride of authorship and take particular umbrage at having to hand over the fruits of their labor to the government. Hence the slogan of the federation’s campaign: “It’s our money, not theirs.”

And small businesses tend to regard the IRS with especially deep suspicion because they are more likely than individual taxpayers--who have less complicated returns by comparison--to become embroiled in disputes with the tax collector.

Former Sen. Bob Packwood (R-Ore.), who, in 1986, was the principal author of the last significant tax overhaul, has said pressure for reform does not tend to come from ordinary wage earners, because the code is not so complex for them, or from big businesses and wealthy people, who can afford tax accountants to handle their finances.

“For those who are very wealthy and can afford accounting advice, I’ve never found complexity bothers them if it favors them,” said Packwood. “But small businesses can’t afford Price-Waterhouse or a tax planning lawyer, and the code is too complicated to do for themselves. That is where I find most of the pressure comes from.”

But as popular as IRS bashing is, the issue is not without political risks for Republicans. Their populist appeals may create expectations of reform they cannot fulfill.

“What we’re seeing is the charge of the light brigade into the valley of death,” said one lobbyist with close ties to House Republicans. “This could be a huge political trap because they are going to raise expectation levels tremendously, particularly among their base. I don’t think they have an exit strategy.”

But some Democrats are also worried about their own political risks if they cannot come up with their own approach to reforming the tax code. “This tax reform fever is not going to go away,” said Rep. Gary A. Condit (D-Ceres), one of the original sponsors of the tax code termination bill. “We can’t stick our heads in the sand.”