Too Simple -- It Must Be a Trick

March 19, 1995|By PETER A. JAY

Havre de Grace. -- Another April 15 Tax Day is almost upon us, and despite some encouraging noises made earlier in the year by the Republican contingent in Washington and the confused amalgamation now in session in Annapolis, it promises to be as dismal as ever.

If there ever was a year for serious tax reform in both capitals, this was it. A new Congress and a new General Assembly, each chosen by a remarkably united and coherent electorate, were presented with an opportunity that's unlikely to come again soon. But each shrank away from it, and most significant efforts to rationalize the tax codes have been indefinitely postponed.

In both Washington and Annapolis, although the problems with the income-tax structure that generated such intense public outrage last year haven't gone away, tax-reform advocates have been out-maneuvered. Reduction of income-tax rates remains at least theoretically on the agenda, but the hip new preoccupation is not with taxes. It is with control of spending -- or what Democrats erroneously describe as ''spending reduction.''

The current bugaboo in Washington is the cumulative budgetary deficit. In Annapolis, where budgets by law are supposed to be balanced, it's what's known as the ''structural'' deficit -- on-going overspending which in the Schaefer years was routinely used to justify tax increases. For practical purposes there's not much difference. Whatever adjective precedes it, a deficit is a deficit. In government, it's the result of more money going out than comes in.

In traditional political circles, even conservative ones, the theory is that cutting taxes before eliminating the deficits would be irresponsible. But at both the state and national levels of government, a growing number of hard-core tax-reformers, mostly legislators of non-traditional background and outlook, continue to question that.

In Washington, these include House majority leader Dick Armey of Texas, who for the last year has been pushing a flat 17 percent federal income tax. Properly explained and put to a national referendum, polls indicate this proposal would be overwhelmingly approved. But the new Republican majority has been timid and tentative about it.

The Armey bill would replace the entire federal tax code with a simple income tax, payable monthly. There would be no withholding, which allows the government to make off with people's money before they receive it. People would have to write tax checks just as they write checks for rent or for car payments.

The only deductions would be $5,300 per child (double the present), and personal allowances of $13,100 for single people, $26,200 for married couples filing jointly, and $17,200 for single heads of households. Nothing else -- no deductions for contributions, home mortgages, expense-account luncheons, or whatever.

There would be no capital-gains tax, no estate tax, no tax on dividends -- which are the profits of corporations that have already paid taxes on them once.

The poor, because of the high personal allowances, would pay less. (A family of four with an income of $34,000 would pay no federal tax. A family of four with an income of $50,000 would pay $2,244.) The rich would almost certainly pay substantially more, as they have in the past (1963, 1981) when tax rates came down. The economy would boom. Tax lawyers and accountants would have to seek retraining.

Would this simple system raise enough money to run the federal government? Well, as the complex system we have now certainly doesn't do that either, that might not be a relevant question. But it will certainly be asked this summer, when the bill is expected to make its plodding way to the House Ways and Means Committee.

In Maryland, where the combined state and local income tax is already a virtually flat tax decked out to resemble a graduated one, most people pay 7.5 percent of the income reported on their federal return. If the Armey plan were law, the combined state-federal-local rate would be 24.5 percent, or just under one dollar for taxes out of every four earned. That's not chicken feed, and if we can't run our governments on it, something's very wrong.

The great strength of the flat tax, as Mr. Armey notes, is that it's based on the old-fashioned idea of fairness we used to be taught in grade school. It treats everyone the same. It doesn't allow the politically influential to distort obscure provisions of a complex law at the expense of everybody else.

Maryland had a true flat-rate income tax until 1968. It would be interesting to see the General Assembly, in the spirit of these more realistic times, write a new one along the lines of the Armey proposal and send it to Governor Glendening.

That isn't likely to happen, I suppose, and if it did it isn't likely the governor would sign it. But a year ago it wasn't considered likely that Congressman Armey would soon be the majority leader of the House of Representatives, either.

Peter A. Jay is a writer and farmer.

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