Tax reform: less hype, more-sober analysis is what is needed

THIS column breaks a promise made to myself not to write about tax reform so soon again. But the hyperbole being showered on the plan by its proponents requires some comment. A key reason for questioning the wisdom of a grandiose tax-reform plan has been the likelihood that no such plan could emerge in pristine condition from this or any other Congress. Now that the plan has been presented, it's also clear that it has undergone considerable alteration even in getting from the Treasury to the White House. Nor are those alterations necessarily bad; they merely prove that political judgments are ever at work in any major legislation.

Last Thursday the President went to Williamsburg, Va., and there, in the same House of Burgesses where Patrick Henry delivered his speeches, Mr. Reagan characterized the present federal income tax laws as ``utterly impossible, utterly unjust, and completely counterproductive.''

It is unlikely that the American public is going to take this kind of talk too seriously. There is ample room allowed for hyperbole in the midst of a political campaign. The making of important legislation, however, requires a more sober approach to reality. It has been something of a mystery why the President chose tax reform as the kingpin piece of legislation for his second term. There is, according to respectable polls, no outcry against the tax system. There is criticism over particular aspects of it -- most particularly over those who cheat and pay no taxes and over those very few individuals who still manage to arrange their affairs to escape all taxation.

The argument being used for tax reform is that unless a reform package is put through as a whole, the special-interest groups will each demand their piece of flesh and no real reform will emerge at all.

There is a limited degree of validity to this argument on some specific counts. When banks or other paying agents were going to be required to withhold taxes on dividends, they organized a powerful citizen lobby to protest, and Congress backed down.

Earlier this year, the same kind of citizen protest was able to change a new law that required daily bookkeeping regarding the use of one's auto or computer, if either was used for both business and personal reasons.

In each of the above instances, common sense seems to have prevailed, thus showing that lobbying for a particular goal is not in and of itself a bad thing.

Now, the most egregious holes in the current tax laws do not require wholesale reform to be filled. The only easy way to get at the underground economy is to tax the spending stream that flows from the unreported income.

This column has suggested before that a national sales tax or a value-added tax would accomplish this to a large degree. (And, through a larger personal exemption, its regressive features could be mitigated for honest taxpayers who do report their income.) Yet this administration consistently backs away from even talking about a consumption tax.

There is no organized lobby to support the few individuals who escape all taxation. It would not require too much ingenuity on the part of a tax-writing committee to change the tax laws to enact a loophole-proof minimum tax. And so on.

The present federal tax system has grown out of legitimate economic and social needs and the political compromise inherent in a federal system made up of diverse states and interests. One can hope that the proponents of tax reform will stick to the issues at hand and leave all the hype for some other day.