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Keeping an Open Mind About New Tax Ideas : GOP lawmakers have plans--some worthy, some flaky

November 13, 1994

Some of the Republicans who will be prime movers when the GOP becomes Congress' majority party in January are starting to detail their agendas for change. None of the plans appears to be more ambitious than that of Bill Archer, who is expected to head the all-important House Ways and Means Committee.

To a large extent the Texan's ideas reflect the debatable "contract with America" that many Republican congressional candidates signed two months before last week's election. Legislation will be pushed to deprive most welfare recipients of their eligibility after two years; a $500 tax credit for each child under the age of 17 will be sought; there will be a major effort to slash the capital gains tax rate from 28% to 14%.

But Archer wants to see GOP tax policy go much further. Notably, he wants to explore doing away with the federal income tax, which the 16th Amendment to the Constitution gave Congress the power to levy 81 years ago. In place of a tax on income he would impose a form of national sales tax--at what rate he hasn't specified--an idea long resisted by liberals and others who argue, persuasively, that it would disproportionately burden the less-well-off.

A DISTANT GOAL: The philosophical core of Archer's argument is that tax policy shouldn't penalize individual initiative or discourage private savings, which Republicans believe is now the case. Archer recognizes, of course, that an idea as radical as abolishing the income tax is likely to remain only a topic of debate for years to come. If nothing else, that debate ought to produce some interesting studies and arguments touching on issues of both practical economics and social justice.

Plainly, federal revenues would fall dramatically if the income tax were replaced by a consumption tax. One question that immediately occurs is how much states and municipalities would have to boost their taxes to make up for the inevitable loss of federal subventions.

Three Republican tax-cutting proposals in particular do seem to us worthy of adoption. At the top of the list should be elimination of the so-called marriage penalty. Under current law, most married couples who file jointly have to pay more in taxes than two single people with the same incomes who file separately. This anti-family inequity, which never made any sense, should go.

So should the tax penalty that now limits Social Security recipients between the ages of 65 and 70 to $11,000 a year in earned income. The effect of this discriminatory rule is to dissuade people who may still have much to contribute to the economy and society from continuing to use their skills. America needs more experience in the workplace, not less.

TROUBLESOME NUMBERS: Finally, we like the idea of restoring tax breaks to all savers by broadening eligibility for IRAs, individual retirement accounts. The nation has an alarmingly low 3% personal savings rate, making the United States heavily dependent on foreign lenders and investors. Boosting the savings rate is essential, and incentives to do so are certainly valid tax policy.

All these estimable ideas, of course, would reduce revenues to the federal Treasury, and as always the problem is how to balance the books so that the government can keep doing those things that even the most conservative of Republicans agree must be done--paying interest on the national debt, funding defense, maintaining the Social Security system. The "contract with America" doesn't offer a lot of help here.

According to House Republican numbers crunchers, the GOP program would produce nearly $220 billion in tax cuts by the year 2000 but only $70 billion in spending reductions. So where is that other $150 billion to come from? If Bill Archer and other tax-hating players in the 104th Congress have an answer, they're not revealing it yet.

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