ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, February 12, 1997 TAG: 9702120049
SECTION: EDITORIAL PAGE: A-12 EDITION: METRO
THE YEAR was 1986. President Reagan was signing the Tax Reform Act, which had been pushed by his administration and approved by a bipartisan coalition in Congress. "This is a tax code," he said, "designed to take us into a future of technological invention and economic achievement, one that will keep America competitive and growing into the 21st century."
Fat chance.
Almost immediately, the political termites began gnawing away at the act's basic principle - establishment of a simpler, fairer tax code under which Americans with about the same incomes would pay about the same in income taxes. Now, albeit from somewhat different directions, both President Clinton and the Republican Congress appear ready to step up the erosion.
To be sure, the 1986 act was far from perfect. Its chief defect, however, was that it didn't go far enough. The mortgage-interest deduction remained, for example, even for secondary residences - with the result that other taxpayers continue to subsidize the vacation condos and get-away retreats of the affluent.
Still, the act did shrink the number of income-tax brackets, narrow the eligibility for tax-deferred Individual Retirement Accounts, end the capital-gains preference, and eliminate many of the more abusive tax-avoidance passive-investment schemes. The result, overall, was to reduce the tax code's distorting effects on market forces and investment decisions.
Today, Clinton's assault on simplification comes in the form of proposed "targeted" tax cuts - for children in low- and middle-income families, for companies that hire welfare recipients, for college tuition.
The last is a classic example of the drawbacks of tax credits even when you grant the desirability of the policy goal. The president's proposed tax credit is no different fiscally, or in its effect on beneficiaries, from outright $1,500 grants. But tax-credit entitlements are even less subject to review and modification than direct-spending appropriations. In this case, they'd also be far less cost-efficient than a means-tested program that concentrates on those for whom it would make a difference in college-attendance decisions.
Admirably, some Republicans are keeping the tax-simplification issue alive. Just this week, GOP congressional leaders called on President Clinton to take on the task, as well as overhaul the Internal Revenue Service. In his bid last year for the Republican presidential nomination, publishing heir Steve Forbes' proposal for a flat tax incorporated the notion of a no-preference tax system.
But many in the GOP have loophole hopes of their own, and the president's proposal to close $34 billion in corporate tax preferences over the next five years hasn't exactly caught fire in Congress. (The $548 million in campaign money raised by Republicans during the past election season, and the $332 million raised by the scandal-plagued Democrats, may have something to do with that.) Unfortunately, too, proposed alternatives like Forbes' flat tax or a national sales tax confuse the issue. While they would make the system simpler, they wouldn't necessarily make it fairer, and they definitely would make it more regressive.
Tax simplification is a worthy goal on its own. It should neither be further undermined, as Clinton would have it, nor tied to other agendas, as the Republicans seem to have in mind.
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