THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, July 19, 1995 TAG: 9507190007
SECTION: FRONT PAGE: A10 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 61 lines
Tax reform is coming. At least three Republican plans are on the table. President Clinton's aides are advising him to duck the issue, but House Minority Leader Dick Gephardt has now put Democrats in the debate by proposing a plan of his own.
Gephardt's 10 percent plan would eliminate almost all deductions and loopholes except the mortgage deduction. Capital gains would be taxed at the same rate as ordinary income. Health-insurance premiums, employer pension contributions, interest on municipal bonds and money spent on state and local taxes would all be newly taxed.
But the heart of the plan is a series of five progressive tax brackets that would shift more of the tax burden to wealthier taxpayers. Under Gephardt's scenario, the first $19,350 of earnings would be exempt from taxation. Families earning up to $60,000 would pay a 10 percent tax. Gephardt estimates that 75 percent of wage earners would be taxed at the 10 percent rate.
Those who earn more would pay 20 percent, 26 percent, 30 percent or - for families earning more than $204,000 - 34 percent. Like Majority Leader Dick Armey's flat tax, Gephardt's tax return could be filed on a postcard. Unlike Armey's, his plan is frankly aimed at appealing to working and middle-class Americans.
Gephardt argues that in addition to taxing most people less and simplifying their lives, his plan would dramatically shrink the tax-preparation industry and the IRS itself. Lobbyists would lose clout along with loopholes, and corporations would lose $50 billion in tax breaks.
The Gephardt plan is clearly inferior to Republican entries in failing to encourage saving and investment. And a final provision is frankly cuckoo. Gephardt would require a national referendum anytime the government wanted to raise taxes. That is populism gone mad and could leave the nation vulnerable in an emergency.
The Gephardt plan stands little chance of passage. The list of forces arrayed against it is formidable, including capital-gains recipients; municipalities and those who hold their bonds; charities, lobbyists, corporations, tax attorneys and accountants and the prosperous. Add to those the Republican majority, and Gephardt's plan is DOA.
Gephardt surely knows that. His purpose is to get Democrats in the debate and show a progressive tax system doesn't have to be complicated. If tax reform comes, it will presumably require a compromise somewhere between Gephardt's position and that of the leading Republican plans.
The good news for taxpayers is that all plans on the table aim at greater simplicity. Many include lower rates predicated on lower government spending. All except Gephardt's promise to encourage saving and investment. So, there's some hope for meaningful income-tax reform. It's certainly overdue since the system is of byzantine complexity and far too intrusive.
The shape of the final product will determine whether individual taxpayers are helped or harmed. Anytime tax law is being rewritten, there's as much chance for mischief as for improvement. There are plenty of powerful interests whose views will be heard. Citizens need to follow this debate carefully and make sure their voices are also heard. by CNB