Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, September 25, 1995 TAG: 9509250127
SECTION: NATIONAL/INTERNATIONAL PAGE: A-5 EDITION: METRO
SOURCE: JOHN KING ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Long
Backers of the idea want it to be a central plank of the 1996 Republican platform and promote it as potentially the defining issue of the presidential and congressional campaigns. In their view, Americans will rush to embrace a simpler system, without all the forms and confusing rules.
But, just as Forbes promises to bring the GOP's flat tax fever into the presidential race, some Republicans are beginning to sound alarms, worrying that simpler might not necessarily translate into fairer - handing President Clinton a political opening.
Given the complexity, and enormous distrust, of the current income tax system, the flat tax has obvious appeal: Everyone would pay one rate, and everyone from Forbes to a minimum-wage fast-food worker could file on a postcard.
The leading proposal, and the one backed by Forbes, is that of House Majority Leader Dick Armey, who would replace the current system with a 17 percent flat tax.
This plan has impressive support among conservative groups, such as Americans for Tax Reform and the Heritage Foundation, which predicts the flat tax would boost national wealth by some $1 trillion almost immediately.
Heritage's Daniel Mitchell also cites the political appeal: ``All taxpayers would play by the same rules under the flat tax. No longer would high-priced lobbyists, tax lawyers and accountants allow some Americans to get special treatment.''
That doesn't mean, however, that some taxpayers wouldn't be treated differently.
That's because the flat tax would apply only to wages, salaries and pensions - not to interest and other earnings on investments.
And most analyses of the flat tax show that those who make more than $200,000 a year would receive a tax cut, while some middle-class families would pay more. Some lower-income families would also come out on the losing end without the Earned Income Tax Credit, in effect a government subsidy to keep the working poor above the poverty line.
It is these provisions that worry some Republicans, even some supporters of dramatic tax overhaul and the flat tax concept. In their view, it wouldn't be too hard for Clinton to turn it into a debate about fairness, about helping the rich at the expense of the middle class, as he did when Democratic challenger Jerry Brown championed the flat tax in 1992.
Writing in the weekly Standard, a new conservative magazine, Tod Lindberg put it this way: ``Are Republicans and conservatives really ready to defend the proposition that someone who gets $200,000 of interest and dividend income a year should pay no taxes while a family of four making $60,000 is ponying up $4,500 a year to the feds?''
That might not be all they have to defend.
Under Armey's approach, the home mortgage interest deduction would be eliminated. In one swoop, this would change the financial world of families who have used that deduction, and their home equity, to finance everything from a new car to a vacation to a child's college education.
While Forbes backs the Armey approach, it is this concern that prompted three other GOP presidential candidates - Sen. Phil Gramm of Texas, Sen. Arlen Specter of Pennsylvania and conservative commentator Pat Buchanan - to endorse a modified approach preserving deductions for mortgage interest and gifts to charity.
On Sunday, GOP hopeful Lamar Alexander said he, too, backs the modified version.
``The American people should be very careful about a pure flat tax,'' he said on NBC's ``Meet the Press.'' ``We can have a flatter, simpler, fairer federal income tax, still have job growth, still have more savings, still have more investment.''
The mortgage issue, and worries that some middle-class families would pay more, is why GOP front-runner Bob Dole has stopped short of embracing the flat tax. Dole is calling for a system that is ``flatter, simpler and fairer'' and asking a commission led by Jack Kemp to find such an approach.
But Forbes warned Sunday against what he called ``the -er candidates'' - those who talk about a flatter, simpler, fairer tax.
``That's code for business as usual,'' he said, also on NBC. ``We tried that in 1986, we got a monstrosity out of it. I want to do it pure this time.''
Armey and his allies argue that allowing one deduction opens the floodgates for lobbyists to make the case for one, two or three more, until the system has lost its overriding charm: simplicity.
And, for every deduction allowed, ``they would have to increase their flat rate or blow a hole in the deficit,'' argues Clinton economic adviser Gene Sperling.
If the purist approach wins the day among Republicans, there also is what GOP pollster Ed Goeas calls ``the tough one that no one has addressed'' - the likelihood that eliminating the mortgage interest deduction would cause property values to fall. That could prove a tough sell to suburb dwellers with big mortgages, the very voters who swing elections.
``Should conservatives be rolling the dice like this with the economic fortunes of tens of millions of Americans?'' Lindberg asks. ``They are voters. They are voting Republican these days.''
by CNB