Tax-Reform Plans In Limbo Until 1996
ROBERT MCINTYRE sees himself as almost running a ''one-man show'' in attacking Republican tax-reform proposals.Skip to next paragraph
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The director of Citizens for Tax Justice has written articles for the Washington Post, the New Republic and the American Prospect magazines, and a column for the Scripps-Howard news service criticizing the flat-tax, consumption-tax plans as ''flat deceptions'' that will hurt the poor and middle class and benefit the rich.
''Once the public focuses on them and understands their meaning, they will reject them,'' he says.
So far, considering the enormous impact any such dramatic tax changes would have on the pocketbooks of most Americans, the alternative plans have not had all that much attention.
''Nobody has really taken these proposals seriously,'' says James Carlson, an analyst with Merrill Lynch, Pierce, Fenner & Smith Inc., in New York. ''I don't think the public appreciates the degree of intensity behind these proposals.''
Authors of the plans are intently serious about trying to implement them. Three conservative plans are the flat tax of Rep. Dick Armey (R) of Texas and Sen. Richard Shelby (R) of Alabama; the Unlimited Savings Allowance (USA) sponsored by Senators Pete Domenici (R) of New Mexico and Sam Nunn (D) of Georgia; and a national retail-sales tax advocated by presidential candidate Sen. Richard Lugar (R) of Indiana.
Last week House Democratic leader Richard Gephardt put forward a more-liberal tax-reform plan in response to the conservative plans. It would eliminate almost all tax deductions or other tax breaks, allowing the income-tax rate for about 75 percent of all taxpayers to be set at 10 percent.
The liberal-leaning Mr. McIntyre calls it a ''useful proposal.''
None of these tax-reform plans, however, is likely to go anywhere in a hurry. A commission on tax reform, appointed by the Republican congressional leadership and headed by Jack Kemp, an enthusiast for supply-side economics and former secretary of housing and urban development under President Bush, is supposed to report back in October. Its recommendations will presumably be used by Republicans to hammer out a compromise measure.
Most observers do not expect such a proposal to come before Congress until after the 1996 election. But McIntrye and others expect reform to become a fiery issue in the election.
All the tax-reform proposals have common themes: They aim to simplify the tax code, encourage savings, and make the economy more efficient. Of course, the various plans have far different means for reaching those goals.
''We can abandon the maddening complexity, the mind-numbing bureaucracy of today's tax system without favoring the loophole jumpers over the factory workers,'' Mr. Gephardt told the press after introducing his plan.
The Missouri Democrat would eliminate tax breaks for charitable contributions and employer pension contributions, but he would not eliminate the deduction for interest payments on mortgages. He would also knock out $50 billion in tax breaks for business - ''corporate welfare,'' he calls it. Gephardt would raise taxes on capital gains from 28 percent to 34 percent, arguing that ''unearned income'' from investments should be treated the same as wage and salary income. Besides the 10 percent tax bracket, he would impose four higher rates on those with higher incomes.
By contrast, the Armey-Shelby proposal does not tax income from interest, dividends, or capital gains at all and reduces progressivity greatly, though it is not completely a flat tax. ''A large share of the income of the wealthiest Americans wouldn't be taxed at all,'' charges McIntyre. ''That would leave middle- and low-income families holding the bag.''
Merrill Lynch's Mr. Carlson and a colleague, Jack Lavery, point out that recent polls show that 57 percent of respondents prefer a tax system that taxes wages and income from investment equally. So they suspect Congress will eventually approve an income-tax system with more than one rate, deductions for mortgage interest and charitable contributions, and taxation of investment income at a lower rate (perhaps 20 percent).
The two describe such a tax plan as the ''most probable eventual outcome.'' But with an election in between, who knows.