The Flat Tax Shifts Onto the Slow Track
ROBERT MCINTYRE says his father is for the round tax. ''When we get to the end of the tax code, we won't fall off into oblivion,'' says the director of Citizens for Tax Justice, a liberal think tank in Washington.
Mr. McIntyre is making fun of the flat tax. But a lot of Republican presidential candidates advocating a flat tax have been falling off the edge of their political world. Sen. Arlen Specter of Pennsylvania was first to drop out of the race. The Iowa caucus this week knocked off Texas Sen. Phil Gramm. Publisher Steve Forbes lies close to the edge of his political fling, the pundits say. So does Indiana's Sen. Richard Lugar with his sales tax.
The flack Mr. Forbes has been getting for his version of a flat tax has reportedly caused House majority leader Dick Armey (R) some concern that it will damage prospects for the flat-tax bill the Texas congressman first introduced in June 1994.
For a time last summer, flat-tax advocates were winning popular support with their promises of low rates, greater simplicity, and economic efficiency. Now the road has become steeper, the criticism louder. The flat tax does not appear to be winning enough votes.
What's happened, explains Brookings Institution economist Henry Aaron, is that people now understand that if the government is to spend the same amount of money but collect that money in a radically different way, there will be important shifts in who pays the tax burden. ''The losers shout louder than those who benefit,'' Mr. Aaron says. And those people who are uncertain figure they will be losers.
Such a major change in the tax system as a flat tax won't get to a vote this year before the election, all sides agree. And Aaron says it won't happen next year or the year after without presidential support. ''Congress is too fragmented,'' he says.
Should President Clinton be reelected, Aaron doesn't expect him to support a tax system that ''increases taxes of the bottom 40 percent'' in income and gives the revenue to the top 1 percent.
Another Brookings scholar, William Gale, says the flat tax has received increased opposition because the discussion has moved beyond the level of popular general principles - such as simplicity, fairness, efficiency - to greater specifics. Then people realize that they can't have all those wonderful principles at once in one tax reform. ''They have to trade them off,'' he says.
As politicians try to make palatable compromises, their ''flat tax'' proposals become sloped. Democratic minority leader Richard Gephardt's flat tax has five tax levels. ''The word has taken over,'' says Mr. Gale. ''It has become almost meaningless.''
Gale sees one shift from the last major tax reform effort in 1986: The merits of such popular tax deductions as those for state and local taxes, mortgage interest, and charitable contributions are being discussed. ''The center of gravity has shifted,'' he says. ''But I wouldn't bet my marbles on a flat tax becoming law.''
Setting out to prepare a 1,000-word report on the Kemp Commission's proposal last month for a flat tax, Gale ended up writing 13 pages for Tax Notes, a Washington tax publication. With criticism after criticism, the report flattens the proposal of that private group, the National Commission on Economic Growth and Tax Reform, set up by Senate majority leader Bob Dole of Kansas and House Speaker Newt Gingrich of Georgia.
One problem for Gale was that the commission, headed by former Congressman Jack Kemp, shied away from specifics. But assuming that personal tax-exemption levels the commission had in mind are roughly as large as those in the proposal of Representative Armey, Gale finds that adopting the commission's proposals would require an estimated tax rate of about 27.5 percent to raise as much revenue as the present income tax system. That's a higher rate than most taxpayers now pay. If the tax rate were set at 20 percent, the proposals would raise the deficit in the first year after the change by $100 billion to $130 billion or more, estimates Gale. That estimate takes into account the possibility the tax change would stimulate the economy.
Armey's plan calls for a 17 percent flat tax. To maintain revenues under the plan, economist Aaron maintains legislators would have to ''stick it to'' homeowners, churches, state and local governments, and the elderly by taking away popular tax deductions that benefit them.
''There's no way out of this dilemma,'' he says. That's why he doesn't expect Congress to pass a flat tax.