THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, January 23, 1995 TAG: 9501200041
SECTION: FRONT PAGE: A8 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 64 lines
The Contract With America calls for tinkering with the tax code - a deduction added here, a loophole deleted there. But they rate as minor course corrections alongside suggestions now being made to scrap the progressive income tax in favor of a flat tax.
Such proposals are no longer coming from fringe figures like Jerry Brown. They are suddenly mainstream. House Majority Leader Dick Armey is a proponent of the flat tax. And, in a startling development, so is House Minority Leader Dick Gephardt who has promised a competing version. Few reforms would have as big or as immediate an impact on the average citizen.
Armey proposes a 17 percent rate for all taxpayers and the virtual elimination of all loopholes and deductions. A Treasury Department analysis says that rate is too low and would increase the deficit by as much as $200 billion a year.
Gephardt would allow 80 percent of taxpayers to pay a flat rate of 10 percent or 11 percent. But he'd retain one or two brackets for higher-income earners. The top rate under his scheme would be around 20 percent.
Armey proposes to exempt the first $13,100 of income for singles, $26,200 for a married couple with a $5,300 deduction per child. The details of the Gephardt plan are not yet finalized, but he would provide similar generous personal exemptions before the tax would kick in.
In a provision sure to be controversial, Armey wants to apply the tax only to earned income - wages and salary. No tax would be owed on so-called unearned income - interest, dividends and capital gains. It isn't hard to justif xemption for the portion of capital gains that can be attributed to inflation. That's a real tax on a phantom gain.
It would be much more difficult to pass legislation that didn't tax income from shares in General Motors but did tax wages earned on the assembly line at GM. Armey contends companies have already paid corporate tax on the former, but selling such a proposition politically would tax his persuasive powers. Especially since Treasury calculations suggest that under his plan, middle-class families would wind up paying $1,700 more in taxes than now. The rich would pay an average of $55,000 less.
Obviously, who wins and who loses under each plan will influence chances for passage. Still, the interest of both Armey and Gephardt in reform offers taxpayers hope that an attempt will be made to simplify a hopelessly complex tax code.
However, reform must take on many vested interests. Elimination of the mortgage deduction will be opposed by lenders, builders, appliance manufacturers, a long list of affected groups. Tax attorneys and accountants will regard a tax that can be filed on a post card as Armageddon. The list goes on and on.
Yet the present system is an intrusive, elephantine tangle that contributes to the government unpopularity. Other instances of federal incompetence and hubris we know only by hearsay; this one we encounter every April 15.
If the Republicans really favor less government, they can start by reforming the income tax and the IRS. Over 15 years ago, Jimmy Carter described the tax system as a disgrace, and a disgrace it remains. If Democrats like Gephardt agree, there may be hope that something other than tinkering will result. by CNB