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TAX REFORM; How two tax reformers view the plan

WHAT IS YOUR OVERALL VIEW OF THE TREASURY DEPARTMENT'S TAX PLAN? Gephardt: I'm not ready to endorse it and say that it's all perfect, but clearly the direction of it is very positive. It has the same general theory as Bradley-Gephardt and the Kemp-Kasten bill, and it, I think, is a very heartening development, and one that I hope will lead to legislation that will get us tax reform.

Kemp: It needs changes, no doubt about it. I think that's why they said they wrote it on a word processor. (But) I don't want to discourage the process. I want to encourage an overhaul of the tax code and get to lower rates on both labor and capital. It's a step in the right direction. WHAT ARE THE MAJOR FLAWS THAT YOU SEE?

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Gephardt: They have a differentiation between the corporate rate and the top individual rate. I think that causes problems. We got our bill to (have) 30 percent top rate (for) individuals, 30 percent rate for corporations. I think that's something that we ought to strive for because then you won't have people incorporating to get a different rate. So that's a problem. Secondly, I think that they didn't leave in some of the deductions you need to, like the deduction for property tax . . . and the sales tax and (state) income tax. You see New Yorkers really complaining about that, and I think that will bring the bill down if it's kept in. I also want to be sure that their rate structure is conducive to the middle class, which I think our bill is.

Kemp: It raises capital gains rates. I think that's a mistake, although it indexes them (to inflation). That's good. It lengthens the depreciation rates and raises the cost of capital (investment). That's bad. It lowers the personal and corporate rates. That's good. But they didn't come down far enough, and that's bad. They increased exemptions for families. That's what Kemp-Kasten does. That's very good. But they don't allow you to deduct the tax on property or real estate. I think that's bad. (An ideal reform would be) a combination of the good out of each plan. I'd like to see them go to a flatter tax. I don't think the department's tax changes are either flat enough or simplified enough. DO YOU THINK THERE'S A REASONABLE POSSIBILITY THAT WE'RE GOING TO SEE SOME FORM OF TAX REFORM?

Gephardt: I think the President has got the thing in his hands. If he endorses the (Treasury Secretary) Regan proposal, then it's got a chance. But he's got to make it a top priority, probably No. 1 priority. Kemp: The President's got to get into this. It's going to take his personal legislative skills, his political skills. Plus he would have to (change the plan). I don't think the Treasury Department's bill is growth oriented enough. But nothing is irreparable.


Gephardt: I have no idea what his (the President's) priorities are. If he doesn't include any kind of tax increase, it makes tax reform a lot harder in my view. If you could get deficit reduction at the same time you do tax reform, it enhances the chance of tax simplification. COULD THE REFORM BE A VEHICLE FOR RAISING TAXES AND CUTTING THE DEFICIT?

Kemp: No. There's not going to be a tax increase. Tax rates and tax revenues are not exactly the same thing. If the tax base expands and you get more revenues, I'd be very happy. I'm not against more revenue. I'd like to see that revenue coming from an expanding tax base.

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