Gephardt would cut income tax rates

January 11, 1995|By Karen Hosler | Karen Hosler,Washington Bureau of The Sun

WASHINGTON -- House Democratic leader Richard A. Gephardt, who pre-empted President Clinton last month with his own version of a middle-class tax cut, surprised the White House and his Democratic colleagues yesterday with a "flatter" income tax plan that would drop the rate for most Americans to 10 percent or 11 percent.

"The American people are fed up with a tax system that drives them crazy," the Missouri Democrat told the House Ways and Means Committee yesterday. Despite refinements in the income tax system, Mr. Gephardt said, the system is "a disaster; it just doesn't work any more."

"We ought to get tax rates as low as we can get them and turn people loose to do what they want," he said.

In what was described by Gephardt aides as an effort to counter Republican tax-overhaul proposals, the minority leader plans to formally unveil next month an alternative that would be less generous to wealthy Americans.

Under the Gephardt plan, the income tax code would be simplified and "flatter." Four out of five Americans would be taxed at a rate of 10 percent to 11 percent. Upper middle-class and wealthy taxpayers would pay a higher rate.

Currently, the income tax code includes five brackets, from 15 percent for those at the lowest income levels to 39.6 percent for individual taxpayers with more than $140,000 a year in adjusted gross income.

Democrats traditionally have supported a "progressive" tax system; the more a person earns, the higher the proportion of his income the government takes. But critics say that penalizes people who are successful and, by taxing income from interest and investments, the current system also penalizes savers.

The Republican-led Congress does not expect sweeping action to revamp the nation's tax structure for at least a year. The top priority for Republicans is quickly to enact the series of middle-class and business tax breaks promised in House Republicans' "Contract with America."

But Mr. Gephardt, a 1988 presidential candidate who is considered a possible Democratic contender next year if President Clinton's campaign falters, is positioning himself early on what may prove to be a popular issue next year.

Although Mr. Gephardt was a chief sponsor in the early 1980s of a tax-simplification measure that was later embraced by President Ronald Reagan and enacted by Congress, he has focused on trade and health care issues in recent years.

Mr. Gephardt said the "flat-tax" plan offered by House Majority Leader Dick Armey, a Republican from Texas, is "a massive redistribution of wealth from the middle class to the wealthiest Americans."

The Armey proposal would eliminate itemized deductions and special tax breaks, and would set a single tax rate of 17 percent. Earnings from savings and investments would not be taxed.

Mr. Armey and the chairman of the House Ways and Means Committee, Rep. Bill Archer, a Texas Republican who would like to eliminate the income tax, both greeted Mr. Gephardt's proposal warmly as a sign of potential bipartisan compromise.

"I found it stirring," said Mr. Archer, who would like to replace the income tax with a consumption tax.

Asked whether he believes such a major overhaul of the income tax structure is possible, with House Republicans in the majority, Mr. Archer said: "Who knows what can happen after 40 years? But it won't be this year."

Mr. Armey welcomed the Democratic leader to the flat-tax debate, saying in a statement: "The flat tax is clearly in America's future, and if the minority leader's statement is not just political posturing, Congress can respond in a bipartisan manner to the public demand for a simpler, flatter, more fair tax code."

So far, the Gephardt proposal represents only the congressman's personal views. He did not consult the White House or Senate Democratic leaders, and discussed his plan with only a few House colleagues. It is not intended at this point to be a House Democratic Party position, aides said.

White House officials said last night that they were unaware of the Gephardt proposal. During the 1992 campaign, Mr. Clinton was highly critical of a similar proposal offered by a rival Democratic hopeful, former California Gov. Jerry Brown.

Mr. Gephardt's free-lancing on a major policy issue -- coming on the heels of his one-upping President Clinton's middle-class tax proposal last month -- raises the question of what his intentions are.

"I'm trying to be minority leader," Mr. Gephardt said in a television interview Sunday. "I'm not running for president."

He said he supports Mr. Clinton's expected bid for a second term and expects him to be renominated despite the drubbing the Democrats took at the polls last fall.

Even if Mr. Clinton failed to become the 1996 Democratic presidential nominee, it's not clear that Mr. Gephardt would be the strongest replacement. He prepared more than two years for the 1988 presidential contest, but faded quickly once the primaries began.

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