Republicans Want to Swap 1040 Form for a Postcard
Tax-reform proponents have two goals: simplicity and savings
WASHINGTON — AT the end of the revolution, after the Republicans have pruned and lifted government from your back, Rep. Dick Armey (R) of Texas would like to send you a postcard.
It won't say how pleasant the climate has become in Washington or show a glossy picture of the Capitol at night. Rather, it will ask you to make six basic calculations, put a stamp on it, and send it back.
That's how simple Mr. Armey, majority leader of the House, thinks filing a tax return can and should be. All that's required is reinventing how the federal government levies the polity. And if Republicans have their way, it may happen sooner than later.
In the past 25 years, attempts to overhaul the tax code have been almost as frequent as legislation requiring zero deficits. But previous reforms have focused only on altering the existing code.
Now a growing number of Republicans, and a few Democrats, want to abandon the current system entirely. Spurred by a swelling grass-roots rebellion against the wing-tipped enforcers at the Internal Revenue Service, these lawmakers want to uproot not only the 82-year-old income tax but the 16th Amendment that established it.
Tax reform has such momentum that some observers predict it could become the primary economic issue in the 1996 presidential election. Most of the mainstream Republican candidates have either proposed an alternative or embrace the principle of replacing the income tax, and President Clinton's advisers are said to be working on a White House strategy.
''The tax system we use in America today is a national disgrace, with a dedicated deduction for every interest group and a loophole for every lobbyist,'' said Sen. Arlen Specter (R) of Pennsylvania in recent testimony before the House Ways and Means Committee. ''Our current system is bizarre, burdensome, and against growth.''
Proponents of tax reform have two primary goals: simplicity and savings. The complexity of the current code, critics note, forces the government and individual and corporate filers to waste hundreds of billions of dollars, and countless man hours, on compliance. Meanwhile, the United States has one of the lowest savings rates of any industrialized nation.
Savings and investments, from personal bank accounts to factory retooling, are vital to sustained economic growth, economists argue.
To solve these problems, reformers want to shift the emphasis from taxing what people earn to what people spend. But that's where the agreement ends.
Armey attempts to boost incentives for savings with his proposed flat tax, which he is expected to formally reintroduce July 19. The plan would tax only wages, salaries, and pensions. Businesses would pay tax on the difference between revenue and expenses. Returns could be filled out on a postcard-sized form. Senator Specter, a Republican presidential contender, advocates a similar plan.
Proponents of the flat tax, which currently is most in vogue, argue that it eliminates double taxation. Earnings on investments, for example, would be exempt. And they argue that the single rate paid by all is the most fair.
But the tax rate itself is in question. Armey proposes an initial rate of 20 percent, dropping down to 17 percent a few years after the transition. The Treasury Department, however, says the flat tax would have to be more like 22 percent to generate current levels of revenue.
At that rate, and without deductions, say critics such as Rep. Richard Gephardt, the House minority leader from Missouri who has proposed his own tax-reform plan, many middle-class taxpayers could end up owing Uncle Sam more than they do under the current system.
Under another tax-reform proposal, sponsored by Sens. Pete Domenici (R) of New Mexico and Sam Nunn (D) of Georgia, individuals would take their total income from all sources, subtract what they save or invest, and pay tax on what's left.
Sen. Richard Lugar (R) of Indiana, another Republican presidential contender, has proposed a national sales tax similar to the kind levied by state and local governments. And House Ways and Means Committee chairman Bill Archer (R) of Texas supports a similar kind of consumption tax.
As Congress and the public debate these measures, the most difficult challenge to such fundamental tax reform may be reconciling it with the other current Republican effort, balancing the budget.
''As soon as Congress turns to tax reform,'' writes Robert Shapiro, president of the centrist Progressive Policy Institute, in the current issue of the New Democrat, ''businesses and individuals will be forced to make tax-sensitive decisions under considerably greater uncertainty.''
In short, he argues, tax reform could slow the economy. That, tied with the potential for revenue loss and high transition costs, could undermine Republican efforts to reduce the deficit just as the bulk of projected spending reductions begin to take effect.