Bumpy ride on the road to a flat tax

January 15, 1996|By Robert Reno

THE FLAT-TAX movement seems to be taking on new momentum and respectability, but there are a lot of reasons not to hold your breath waiting for it to succeed.

Chief among them is the fact that there is wide dispute among the flat-taxers themselves about just what a flat tax should look like. Republican presidential candidate Steve Forbes staked out for himself last week the leadership of the purist faction. He wants an absolutely flat tax that excludes interest and dividend income and abolishes all deductions, even those for mortgage interest, state and local taxes and charitable contributions.

Sen. Phil Gramm would describe himself as an equally committed flat-taxer. But his plan would retain deductions for mortgage interest and charity. Pat Buchanan, in addition to keeping these highly popular and highly expensive deductions, would continue to tax ''unearned'' dividend and interest income.

These are not minor differences. The amount of money involved is huge, and the politics are explosive. Indeed, Mr. Buchanan has chosen to characterize them in fighting terms. He says that by excluding interest and dividend income, his fellow Republicans want to coddle ''trust-fund babies down in Palm Beach, clipping coupons and paying zero tax.''

This is the sort of rhetoric that shows you the potential for blood-spilling among the flat-taxers themselves. Neither are they able to agree on a single rate necessary to replace the revenues now brought in by the present graduated income tax. Some are holding out the promise of a single rate as low as 16 percent, which sounds exceedingly attractive until you look at more serious studies showing that it would have to be at least 21 percent and perhaps much higher, depending on how many deductions are retained. Homeowner deductions alone cost +V about $65 billion a year.

The dilemma facing the flat-taxers is that they need a low basic rate to make their plan look appealing, but a lower rate makes it extremely difficult to retain popular deductions.

And consider the formidable forces that can be expected to line up against the whole concept of the flat tax, including most of the interests benefiting from deductions and loopholes that survived the last round of tax reform. These forces are not limited to liberals to whom the idea of taxing the incomes of millionaires and wage-earners at an equal rate is just plain unfair. Consider the amount of money and influence that can be marshaled by the real-estate industry alone if it feels homeowner deductions are threatened.

They've got one thing right

It is easy enough to dismiss the flat-tax movement as a stealth attempt to comfort the comfortable and afflict middle-income wage-earners with a heavier tax burden.

But the flat-taxers have got one thing right: They want a more intelligible system that is easier to comply with, harder to evade, less studded with loopholes, cheaper to administer and less likely to criminalize taxpayers. So does every sane person in America. And to get it does not require a less progressive tax code, only a radically simplified one.

Robert Reno is a columnist for Newsday.

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