A `do something' tax bill
THE tax reform bill that has emerged from the House and Senate negotiations -- assuming it will be passed during up-or-down voting in both chambers when legislators return from their three-week recess -- represents a major political achievement. Leaving aside for a moment its social and economic effects, which may be far less impressive, the bill says something about Washington's ability to focus on an issue and do something.
The tax reform, if approved, would let President Reagan claim a major domestic achievement in his second term. It represents a longtime Reagan political ambition -- reducing what he considered a confiscatory tax rate for high-income earners.
The legislation is no less a philosophical and legislative victory for Sen. Bill Bradley (D) of New Jersey, Rep. Richard Gephardt (D) of Missouri, and Jack Kemp (R) of New York, who pressed for a tax code less geared to shelters from taxes and more geared to earnings incentives. And it is a leadership success for the committee chairmen, Rep. Dan Rostenkowski (D) of Illinois and Sen. Bob Packwood (R) of Oregon, who overcame frequent stalls in its momentum. These achievements should be recorded, if only to offset the usual cynical complaints about the political process.
Our assessment of the practical effect of the bill is more tempered, however. First, it is difficult to substantially improve the personal economic situations of most Americans by tax changes alone. Education, career decisions, responsibility for offspring, marriage or divorce, decline or advance of the industry or region where one works -- such things make the big differences for most households. Marginal differences of 1 or 2 or 3 percent in tax outlays will not greatly improve or impede their prospects. Also, most people do not have that many variables to consider; those with greater flexibility will rush to compensate for the legislation's impact -- by buying big-ticket items like autos in the closing months of this year to take advantage of the sales tax exemption before it disappears in 1987, or deferring income to 1987, when rates will be lower.
The bill is liberal, in that it removes from the tax rolls millions of low-earning Americans. It is populist in giving relatively more Americans more say over how they spend their money. It is conservative and supply-side, in that it will stimulate more spending in the short term, and thus possibly generate tax revenue. Mostly it is mainstream, in that it protects the first and second home mortgage deductions and state income and property tax deductions.
But the middle class will have to pay more to offset the new advantages for rich and poor. Older, struggling industries will lose out in favor of new high-tech industries. Single and childless households will pay to offset the ``pro family'' aspects of the legislation. Businesses must recapture the revenue lost to higher taxes.
The big philosophical assumption is that the bill will impel individuals and businesses ``to look at the economic effects of their actions, rather than just the tax effects,'' advocates contend. We shall see. The political stakes in revising the tax code may be considerable, but the practical effect may be far more modest.