Content provided in partnership with

Breaking the code: neither a flat tax nor a sales tax will happen. here's how Republicans could get serious

National Review, March 9, 1998 by Ramesh Ponnuru

Mr. Ponnuru is NR's national reporter.

CONSERVATIVES have reached an impasse on tax policy. Congressional Republicans have not attempted to repeal the tax increases of 1990 and 1993, nor even seriously challenged the conventional wisdom that attributes the Clinton "boom" to those increases. The income-tax system produced by the 1986 tax-reform, with its top rate of 28 per cent, is a distant memory.

The tried-and-true formula of across-the-board reductions in tax rates -- implemented by Reagan in 1981 with the Kemp - Roth bill and, on a smaller stage and in less purist fashion, Christine Todd Whitman in 1994 -- seems, for the time being anyway, to be a political non-starter, tainted by its association with the Dole campaign.

Most Popular Articles in News: The Ten Best Laptop bags; Tata plans cheapest-ever car for Indian market; GLOBALIZATION AND THE DEVELOPMENT OF UNDERDEVELOPMENT OF THE THIRD WORLD; Corn is good for you; Corn is not only a tasty treat, but also a cereal that ...; THE 50 BEST STYLISH HANDBAGS TO CARRY; More »

Many conservatives seem to have concluded from the failure of Reagan's tax-rate cuts to endure that sweeping tax reform must come before tax cuts. In addition, they believe they can harness populist anger against the complexity and unfairness of the tax code to achieve supply-side goals. These goals include, in order of importance: ending the double taxation of savings and investment; replacing the progressive tax-rate structure with one rate; and trading the tax code's panoply of deductions, credits, and other breaks for lower marginal tax rates. Reformers also want to cut average tax rates, both as an end in itself and to build popular support.

But the cause of sweeping tax reform is stalled, and neither the Democrats' control of the White House nor the Republicans' tenuous control of the House nor the attacks on Steve Forbes from other Republicans in 1996 nor even the divisions among reformers themselves fully explain why. Plenty of Republicans, and not just moderate-to-liberal ones, worry that a flat tax or a national sales tax could be a political disaster.

The chief substantive problem with both proposals is that they would expand the constituency for liberalism. A national sales tax would spread individuals' tax burden over so many transactions that they would cease to register the burden. And the flat taxes offered by Steve Forbes and Dick Armey would take millions of voters off the income-tax rolls through generous exemptions, thus expanding the ranks of people who can vote for big government at no obvious cost to themselves. This feature of the flat tax is designed, of course, to defuse the "fairness issue."

It won't. For eight years -- ever since then-Senate Majority Leader George Mitchell single-handedly sank President Bush's proposed capital-gains tax cut -- tax "fairness" has spooked Republicans. Ever since Republicans took control of Congress they have made tax policy with nervous glances toward the tax-distribution tables. Hence the income ceilings on the child tax credit and IRA expansion that Congress passed last year. But if they won't take the fairness issue head-on, they're hardly going to eliminate the progressive rate structure entirely.

The tax reformers ignore such political obstacles because, fundamentally, their project is anti-political. In their heart of hearts, reformers would like to have a bunch of free-market economists sit around a table, design the ideal tax code, and ram it through the political system. That's why most of them refuse to work with Rep. Dick Gephardt (D., Mo.), even though most of the provisions of his reform plan move in the right direction. At a meeting in 1996, after a senator had proposed a compromise, one grim activist exclaimed, "Our goal should be perfection!" But that's not the way the system works, or should work.

Political realities have forced reformers to wise up of late. But even the most sophisticated strategies for reform depend on Republicans winning the Presidency, a filibuster-proof majority in the Senate, and a large margin in the House. Then they'll be able to ram something through. Until then, the thinking goes, Republicans should enact some small tax cuts -- repeal the estate tax, end the marriage penalty -- but mainly avoid mucking up the tax code. Meanwhile, reformers will take their case to the American people.

This isn't a strategy, it's a fantasy. Neither the small tax cuts nor the proselytizing is likely to yield the requisite Republican realignment. And with a consolidated majority, Republicans might be even more averse to risk than now. Politicians can gloss over difficult details on the stump. But actual legislation would pit the abstract goal of tax simplification against voters' concrete interest in various deductions. Republicans did something similar in 1995, pitting the abstract goal of a balanced budget against voters' concrete interest in Medicare benefits. They do not seem eager for a reprise.

AS A result of the conflicting pressures from reform activists and the realities of the political system, Republican tax policy has oscillated wildly between interest-group pandering and pure abstraction. The flat tax could become what the commitment to a Balanced Budget Amendment was for years: boilerplate that Republicans insert in their speeches without ever delivering; or, worse, an excuse for not enacting achievable cuts. In 1996, some conservative senators proposed making the GOP's tax cuts temporary; after all, we would have systematic reform in a few years. In 1997, the prospect of future reform became a reason not to worry about making the code worse in the meantime.

Breaking the code: neither a flat tax nor a sales tax will happen. here's how Republicans could get serious

National Review, March 9, 1998 by Ramesh Ponnuru

Find Research Guides for:

Find Featured Titles for: Business

Most Popular Articles in News

Most Popular Publications in News