-30 It is fascinating to observe the growing debate over reforming the federal tax structure: fascinating, but sad.
Of course, there is little disagreement on the need to change the status quo. We are all familiar with the litany of genuine complaints about the revenue system. It is cumbersome, inefficient, and unfair. Unfortunately, a key obstacle along the road to tax reform is being ignored.
There is no shortage of interesting suggestions for change - flat taxes, valued-added taxes, expenditure taxes, and gross income taxes. Proponents of each alternative focus on the benefits they expect from the change. And those benefits could be very significant: greater equity (''equal treatment of equals''), more incentives for saving and investment, higher levels of employment and economic growth, and ease of administration.
Yet, there is one overriding problem the proponents must face: how to raise the large amounts of revenue needed to reduce the awesome gap between the government's income and its outgo. Most advocates of tax reform seem to run out of time, or rather steam, before they get around to tackling this tough question.
The more serious proponents of flatter taxes do respond. Along with reducing the number of brackets and lowering rates, they propose strange measures to offset the initial revenue losses. For example, both the FAIR tax suggested by Sen. Bill Bradley (D) of New Jersey and US Rep. Richard Gephardt (D) of Missouri and the FAST tax developed by Rep. Jack Kemp (R) of New York and Sen. Robert Kasten (R) of Wisconsin would eliminate that key incentive for economic growth: the investment tax credit. The result, unfortunately, is likely to be a weaker economy and higher levels of unemployment than would result from retaining the existing tax system.
The dilemma faced by the proponents of tax reform is serious, but it can be dealt with in a constructive manner. We can both reduce the deficit and reform the tax code. But to close the budget gap we must also do something else. It may sound like the long way around Robin Hood's barn, but the initial step toward tax reform is to gain control over federal spending. As long as government outlays continue to rise rapidly, the opportunity for effective tax reform will be very limited.
At the most general level of analysis, the need is to reverse the trend of recent years whereby ever-larger shares of the gross national product are devoted to federal spending.Every comprehensive look at federal spending patterns reveals an array of waste, inefficiency, and low-priority, postponable expenditures. That point has been made by an impressive variety of organizations - the Congressional Budget Office, the General Accounting Office, the Heritage Foundation, and the Grace Commission. Candidates for budget cuts exist in every department and agency, without exception.
Reforming the Internal Revenue Code is surely worth pursuing. Yet so long as pressure exists for raising ever-increasing amounts of revenue, it will be difficult to introduce many improvements in the tax system without offsetting them with undesirable revenue-recouping changes. Of course, it is a lot more fun to discuss tax reform than to struggle with the details and difficulties of controlling specific and often popular spending programs. But a successful, lasting reform will come only after we learn how to control our fiscal appetites.
Our inspiration should be the old motto of the budget office, ''Good budgeting is the uniform distribution of dissatisfaction.'' The truth of the matter is that not enough of the spending agencies are dissatisfied. Tools for more effective budgeting are readily available - zero-based budgeting, benefit-cost analysis, cost-effectiveness analysis, the line-item veto, etc. But the most powerful method of budget control is none of these sophisticated approaches. To be sure, professional analysis can be of great value in identifying and ranking candidates for budget cutting. Yet the most fundamental tool of budgeting is both simpler and harder to use than differential calculus or advanced econometrics. It is the ability to say ''no!'' Budget cutting will be successful only if each major interest group supports the entire effort, including trimming items that benefit them. That sounds idealistic, but it is only enlightened self-interest. Every key segment of American society will benefit from an overall slowdown in federal spending, and to a far greater degree than it now benefits from the existing crazy quilt of special spending programs. In contrast, trying to start a budget-cutting campaign by focusing on the benefits that other groups are receiving only encourages those other interest groups to take the same self-serving attitude. The sad result is that nobody then takes the deficit problem seriously.
Business associations, labor unions, farm organizations, senior citizen groups, and other interests must join the effort to put Uncle Sam on a long-needed diet - and each must support reducing its own pet government spending. Only then can the needed reform of the tax system get under way in earnest.