The US tax code is an awkward contraption of rates, deductions, and exclusions, bolted together by Congress with little attention to overall aesthetics. Once again, there is a rising chorus of voices in Washington calling for reform. Is it time to give our revenue-raising machinery a thorough overhaul?
In their reply to President Reagan's State of the Union address, the Democrats listed the simple, four-step Bradley-Gephardt income tax as one alternative to Mr. Reagan's economic policies. (The Bradley-Gephardt plan - named after its authors, Sen. Bill Bradley of New Jersey and Rep. Richard A. Gephardt of Missouri - allows three deductions: donations to charity, mortgage interest, and property tax, and has 4 tax brackets ranging from 14 to 28 percent.)
Last month, Martin Feldstein, the President's chief economic adviser, said the White House was considering a proposal to scrap the income tax in favor of a tax on consumption. The idea drew a good deal of criticism, but the administration is still considering it.
Gregory Ballantine, deputy assistant secretary of the Treasury for tax analysis, says guardedly that the Treasury is studying in depth both consumption and flat-rate tax proposals.
And the need to shrink horrendous deficits in future years may make a tax overhaul inevitable.
''I'm sure we'll look at tax reform as it becomes more and more inevitable that we'll have to raise revenue in the out years,'' says an aide to House Ways and Means committee chairman Dan Rostenkowski (D) of Illinois.
Respresentative Rostenkowski took a first step toward this goal Feb. 8 with a proposal to repeal or delay various tax cuts now scheduled to take effect after 1983.
Since 1773, when a band of raffish colonials dumped a shipload of tea in Boston Harbor, taxes have made Americans testy.
A recent study by the lobbying group Citizen's Choice concluded that ''most taxpayers feel the present system is unfair.'' Another 1982 survey found that one-third of respondents felt the income tax was the most unfair tax of all.
''I think we're almost at a crisis in terms of people's willingness to pay taxes,'' claims Representative Gephardt. ''Many people have this feeling they're missing something - that other people are avoiding taxes, but not them.''
Tax experts say, however, that the public tends to focus on the term ''tax reform,'' feeling in some vague way that this means ''lower taxes for me.'' These experts say the tax-reform issue is really composed of three related problems: tax simplification, distribution of the tax burden, and choice of tax base. Simplification
Over the years, the tax code has been perforated with ''loopholes'' - deductions and credits - through which more than $250 billion in lost tax revenue leaks every year. Plugging these leaks would simplify the system, broaden the tax base, and allow tax rates to be lowered across the board.
''But the principal beneficiaries of loopholes are not the rich or Mr. Corporation. They're (the middle class),'' points out Tom Field, publisher of Tax Notes. The deduction of mortgage interest is a loophole that loses the government $28 billion a year. Another $22 billion leaks through the provision that allows taxpayers to deduct state and local taxes from their federal income tax.
These middle-class loopholes are politically sacrosanct, says Representative Gephardt. Thus, a high percentage of the remaining loopholes must be plugged to achieve meaningful rate reduction.
Brookings economist Joe Pechman estimates that if what he terms ''unnecessary'' deductions are eliminated, tax rates could be cut an average 22 percent. Distribution
Last summer the ''flat tax'' was the rage in Washington. Under such a system, all income is taxed at the same rate. Unlike today's sloping ''progressive'' tax system, rates would not rise for higher income taxpayers.
Most flat-tax proposals (at least 10 were introduced in the last Congress) also call for simplification of the tax code. Sweeping away all deductions would allow the flat rate to be relatively low: 16 percent, estimates Brookings economist Henry Aaron.
But the rate-lowering effects of tax simplification obscures a central characteristic of the flat tax: It lifts part of the US tax burden off of the rich, and loads it on the shoulders of middle- and lower-income taxpayers. With a 16 percent flat-rate tax that includes a personal exemption, but eliminates all other deductions, average taxes would increase for taxpayers with less than
Many conservatives feel that a flat tax would be more fair than the current system, which they say discriminates against the successful. Presidential counselor Edwin Meese III has called the progressive income tax ''immoral.''
But fooling with the distribution of the tax burden is very risky politically.
''If we try to change the distribution of taxes, we will very quickly destroy our ability to do anything in the way of major tax changes,'' Mr. Gephardt claims. What should we tax?
The income tax - both individual and corporate - has been the US revenue workhorse since 1913. But over the years many economists have yearned instead for a broad-based tax on consumption. Such a tax, they argue, would provide more incentive for savings and investment than an income tax. Instead of struggling with Form 1040, a taxpayer would add up income, deduct savings deposits and loan repayments, and pay tax on what was actually spent. Reagan considered proposing such a tax in his State of the Union address.
''Many of us do think that taxing consumed income is a promising approach to tax reform,'' Martin Feldstein, chairman of the Council of Economic Advisers, said last month.
But a pure consumption tax would hit the poor relatively harder than the rich. It would also raise less money than the income tax, since its revenue base would be smaller. And the logistical problems involved in any switch would be mind-boggling.
Dealing with any of these three tax issues is made difficult by the fact that tax reform is a ''zero-sum'' game. For each person who would pay less tax under a proposed reform, someone else would have to pay more, if overall revenue is to stay the same.
As Congress faces yawning deficits in the years ahead, the tax reform movement may be swamped by a rush for more revenue. Tax Notes publisher Field predicts Congress will have to levy a 1 percent value-added tax to stem post- 1984 red ink. How much income tax revenue Uncle Sam loses on: 1983 1984 (billions) (billions) Net exclusion of pension contributions and earnings: Employer plans $49.7 $56.6 Deduction of mortgage interest on owner-occupied homes $25.1 $27.9 Deduction of nonbusiness state and local taxes other than on owner- occupied homes $20.1 $21.8 Exclusion of employer contributions for medical insurance premiums and medical care $18.6 $21.3 Capital gains not treated as income (other than agriculture, timber, iron ore, and coal) $15.9 16.6 ASI benfits for retired workers $15.7 $16.7 Investment credit, other than employee stock-ownership plans, rehabilitation of structures, energy property, and reforestation expenditures $13.0 $14.6 Source: Office of Management and Budget estimates