Preach It Flat

September 11, 1994|By GEORGE F. WILL

WASHINGTON — Washington. -- The first -- make that the only -- thing Congress should do before adjourning is pass Rep. Dick Armey's ''Freedom and Fairness Restoration Act.'' Congress won't, any more than a crocodile will drain the swamp that is its habitat. Still, the bill is a blueprint for relimiting government and changing Washington's political culture.

Mr. Armey, a Dallas Republican, believes government grows faster than most Americans want or know because of the stealth and meretriciousness of the political class. The withholding tax siphons away money before earners see it. Everyone, says Mr. Armey, knows how much his monthly car payment costs but who knows exactly how much the IRS is taking each month?

By the fiction of the ''employer contribution'' to Social Security taxes, which actually is just part of the employees' compensation, government blurs the fact that it is taking a 15.3 ++ percent bite from paychecks. Two-thirds of Americans pay more in Social Security taxes (counting the employer ''contribution'') than in federal income taxes, but do they know that?

Under ''current services baseline budgeting'' a $2 billion spending ''cut'' is proclaimed when a program scheduled to increase $10 billion is increased by ''only'' $8 billion. And there is the hidden taxation of government subsidies and regulations, such as the 40 cents of the cost of an average jar of peanut butter that is the cost of subsidizing peanut farmers. The average family, says Representative Armey, pays more in taxes than it spends on food, shelter and clothing combined.

The core of his bill is a 17 percent flat tax on income. This net tax cut for the nation would be paid for by thorough simplification of the tax code and by spending restraints.

Taxpayers would add up their wages, salaries and pensions, subtract personal and dependent deductions, and pay 17 percent of the remainder. With a personal deduction of $26,200 for a married couple and $5,300 per child, a family of four earning $36,800 would pay nothing. These high allowances make Mr. Armey's flat tax progressive: The wealthy would pay a larger percentage of their incomes in taxes than middle-income people would pay. Many millions of the working poor would be removed from the tax rolls. A family of four earning $50,000 would pay 4 percent of its earnings, a similar family earning $200,000 would pay 14 percent.

But all would file their returns on a form the size of a postcard. This would radically reduce the estimated 5.4 billion hours a year -- as many hours as the entire population of Indiana works -- that Americans spend complying with federal income-tax laws. Furthermore, a flat tax would cause wholesale and wholesome unemployment in Washington's parasite class of lawyers and lobbyists who rent themselves to the sort of people economists call ''rent-seekers'' -- people seeking to gain advantages, or impose disadvantages on others, by tampering with the tax code's baroque complexities.

Because savings would be untaxed under the flat tax, there would be more savings, so the pool of investment capital would grow, interest rates would fall and new businesses would proliferate. Elimination of capital-gains taxation would remove the disincentive to shift money from old investments to new ones, and the stock market would boom.

Mr. Armey's bill would build into the American year a dozen incitements of popular resistance to government. By eliminating withholding, it would require taxpayers to write monthly checks to the IRS. Imagine: Twelve occasions for comparing the value of government benefits received with the value of disposable income lost.

Representative Armey knows that his bill stands no chance in Congress as it is currently controlled. However, he believes the flat-tax idea is going to be carried to Washington by many new members of Congress next January. Certainly the end of the Democrats' control of Congress would churn the national agenda.

Mr. Armey, who has been tireless in taking his message on the road and onto talk radio, believes his bill could be in 1994 what the Kemp-Roth tax-cut proposal was in 1978 -- an anticipation of a Republican president's program. Already there is occurring here an unexpected shift in the intellectual center of gravity.

The coming of the Clintons and their friends was assumed to mean the ascendancy in Washington of the Ivy League political culture. However, the tone of Congress, which today is the tone-setting institution in this town, is increasingly set by two former professors of economics from universities far from the Northeast, Sen. Phil Gramm from Texas A&M and the former chairman of the economics department at North Texas State University (now the University of North Texas), Dick Armey.

9- George F. Will is a syndicated columnist.

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