Capitol Hill has better things to do than fiddle with touchy tax system
WHEN the House votes this week on the so-called tax reform bill, business lobbyist Charls Walker won't be the only happy person if it is defeated. As we have argued here before, tax reform in as complex an economy as that of the United States is dangerous stuff. The tax system is complicated because our economic lives are complicated. The present system has risen from a series of decisions based on perceived economic or social priorities as sifted through Congress over many decades. To have thought that this same body of representatives, used to responding to public pressures and to making compromises among themselves, could come up with a sleek, simplified tax system that would be any fairer than the one we have was to ignore political reality. Yet this tax reform idea has been the main domestic political initiative for Mr. Reagan's second term.
The bill that has emerged from the Ways and Means Committee has restored some of the deductions disallowed under the Reagan plan. It has bowed to some lobbying pressures, at least some of which appear to be in the direction of greater fairness. For instance, the committee has restored the deductibility of state and local taxes. The White House refers to some states as high-tax states, and the loss of deductibility of taxes would put the citizens of those states at a new, relative disadvantage.
Yet the states falling in that category are California and 14 states in the Northeast. Few people can be found who will argue for the efficiency of state or even many local governments. But it just happens that the states most affected are those that either have high costs because of their more severe climates or because their urban areas are magnets for immigrants or migration within US borders.
In restoring this deduction, however, as well as in other changes it made, the House bill would raise the maximum tax to 38 percent -- higher than Reagan wanted -- and increases the tax load on business. This at a time when American business needs to become more competitive on a global basis.
If enough House Republicans vote for the bill, it will be kept alive for revision in the Republican Senate. Any Republican version would be closer to the original Reagan proposals, but not necessarily a version that could be compromised with the Democratic House. Or, if compromise were possible between rather strongly opposed views, could anyone claim that the resulting bill would be simple and fair tax reform? One must at least ask whether it would not be better to let the bill die in the House this we ek than subject the country to another year of uncertainty.
As the economy enters its fourth year of expansion, such uncertainty could be damaging. There have been signs that some business spending is being held up because of threatened revisions in the investment tax credit and in depreciation schedules.
Congress must still deal in a substantive way with deficit reduction. That is another reason for being done with the hours of debate over tax reform. In another month Washington will be busy thinking about the fiscal 1987 budget. It will become even more apparent that taxes in some shape have to be increased to make enough progress in reducing the deficit. It may even be the year when talk about a value-added tax becomes respectable.
None of the above argues that the present tax code is as good as it can be. But past experience should have taught us that wholesale tax reform is not the way to go. And, in this particular instance, Congress has more important economic business to confront.