Taxes: The elusive goal of reform
THE doors to the House Ways and Means Committee's hearing room will slam shut tomorrow as the panel begins work in secret on the most comprehensive tax-reform effort in recent history. The members of the tax-writing committee will have before them a spread sheet that summarizes the nation's tax-reform debate.
One column will summarize the provisions of the much-criticized current law. This monument to complexity covers 2,135 pages of tax code and 10,000 additional pages of regulations and court rulings. The second column will list the sweeping tax-reform proposals President Reagan unveiled in late May with a call for a ``second American Revolution.'' Rostenkowski's column
The third column will spell out House Ways and Means chairman Dan Rostenkowski's views of ``likely areas around which a consensus can be found,'' says committee chief counsel Joseph Dowley.
Mr. Rostenkowski, a Democrat from Illinois, is the President's chief ally in a bid for tax reform that so far hasn't ignited much public support. That lack of support is one reason final passage of any tax-reform plan is likely to be delayed until 1986 with implementation of the new law phased in starting in 1987.
The tax-law changes the House panel, and eventually the rest of Congress, enact will be a high-stakes venture for the individual politicians concerned and for the United States and world economies.
Politically, tax reform is the keystone of Mr. Reagan's second term. Critics charge that he has tended to ignore other pressing economic issues -- including the massive federal budget deficit and the mounting US trade deficit -- in his push for tax reform. While denying that charge, Reagan's public comments show him to be firmly committed to his tax plan.
``America wants tax reform; America deserves tax reform,'' the President said recently in Concord, N.H. ``If we stand together, America is going to get tax reform.'' Since Memorial Day the President has stumped for his reform blueprint in more than a dozen states with additional trips already scheduled. Tuesday he traveled to Athens, Tenn., to sing his plan's praises.
Democrats want to keep the President from walking off with the tax-reform issue, traditionally a Democratic theme. And Rostenkowski is widely seen as wanting to use his performance sheparding tax reform through the House to vault over Texas Democrat and House majority leader Jim Wright's announced intention to replace House Speaker Thomas P. O'Neill (D) of Massachusetts. Mr. O'Neill has announced that he will retire after the current session of Congress.
The outcome of the tax-reform debate will have an equally momentous impact on the US economy and indirectly on the economic health of other nations as well. The incentives and penalties in the tax code play a major role in shaping Americans' economic behavior.
Industry lobbying groups and private economic forecasting firms have spent millions of dollars analyzing the potential impact of the Reagan reform proposals, which were crafted under the direction of Treasury Secretary James A. Baker III. Leaders in industries that would be helped tend to view the plan as inspired. Those who think they would be hurt claim the reform package would erode the foundations of the Republic. Overall impact uncertain
The truth is that no one knows for sure how the law would affect any one industry or region. The economy is a highly complex mechanism where changes in one area spark often unpreditable changes elsewhere. ``There is no way of capturing all the effects in an economic model,'' says Leon Taub of Chase Econometrics.
There is general agreement among forecasters that the Reagan reform plan is less helpful to manufacturers than the current code but more helpful to the nation's service industries than existing law.
For individuals, the Treasury Department says the Reagan plan would cut taxes for three out of five families, raise them for one out of five, and leave one out of five with an unchanged federal tax bill.
On Tuesday the White House released a study that said the President's tax plan would boost the gross national product by up to 3.2 percent and lead to the creation of almost 4 million new full time jobs.
The public is less optimistic. A June 30 Gallup poll found that 30 percent of Americans think their taxes would stay about the same, 24 percent think they would go down a little, and 19 percent think they would go up a little. Relatively few thought their taxes would go up a lot (11 percent) or down a lot (2 percent). Why support is lukewarm
Members of Congress say that in addition to expecting few benefits from tax reform, voters think Congress should act first on more pressing problems like the trade and budget deficits. As a result, support on Capitol Hill for tax reform has been lukewarm and members have been willing to see the tax-reform schedule slip.
``I don't think it has any chance of getting through Congress this year,'' Speaker O'Neill said last week. Senate majority leader Robert Dole (R) of Kansas added that there was ``no way to finish'' action on the bill in the Senate this year if the House doesn't complete its work on it until November. Congressional leaders hope to adjourn by Thanksgiving.
The White House argues action could be completed by year end, as Reagan wants. ``We think it is entirely possible and it should be done,'' said White House spokesman Larry Speakes. He added that Senate Finance Committee Chairman Bob Packwood (R) of Oregon ``has indicated that it can and will be done.''
The White House has a major weapon in the complexity and unpopularity of the current tax system. The system's flaws are a factor in the growing level of tax cheating. ``Our own studies show that . . . the compliance level is trending downward,'' says Internal Revenue Service Commissioner Roscoe L. Egger Jr. Americans fail to report roughly $1 out of every $10 in income, according to the IRS.
Mr. Egger also notes that taxpayers are ``fed up with the system's unequal treatment of people and corporations.''
Any reform bill that emerges from Congress is likely to scale back some of the tax breaks that made it possible for so many companies to escape tax.