Cutting Taxes: The All-American Panacea By Richard Craig July 4, 1997

As we spend today observing our country's 221st birthday, it's only fitting that both Congress and the president are celebrating in the most quintessentially American way they could think up. They're both pushing tax-cut bills.

Now there's cause for celebration, right? We all get to keep a little more of our paychecks. Our elected officials must finally have seen the light.

Unfortunately, the plans themselves and the reactions to them indicate that the motivation behind these moves has a lot more to do with election strategy than with what's good for the country.

In the first place, if President Clinton really thought a tax cut was such a good idea, then why didn't he submit one to Congress in his first term? He campaigned on the issue, but even with a Republican Congress in the last two years, he introduced no serious tax cut proposal. Now all of a sudden he puts forth a bill that sounds like it could have been written by Newt Gingrich himself. Among other elements, the Clinton plan includes a capital-gains tax cut (a George Bush favorite for years), a cut in estate taxes and new rules allowing some penalty-free withdrawals from IRA accounts.

Considering that this bill takes huge steps in the Right direction, Republicans should be overjoyed. At last, it appears that we'll have the first major tax cut in 16 years. If the Republicans were concerned first and foremost about pursuing their goals, they'd be elated.

Unfortunately, that's not the way things are going. GOP senators and congressmen alike are grousing about how Clinton has stolen their issue. While there were some significant differences between the House and Senate plans, Republican leaders believed they could easily reconcile them and announce that they were on the brink of both a balanced-budget amendment and tax cuts just three years after taking control of Congress.

Now, with Clinton stepping into the breach, GOP leaders are afraid that the party won't receive the proper credit for the tax reductions. More tellingly, they are also upset that they won't be able to claim victory over Clinton on the issue. If there are two things Republicans agree on, they're taxes and Bill Clinton, and they were literally drooling at the opportunity to pass a tax cut and paint Clinton as "another tax-and-spend liberal," all in one fell swoop.

With Clinton's introduction of his own tax bill, however, it appears that the president has yet again shown his deft touch at winning the image battle. In fact, early polling indicates that on the tax issue, Americans trust Clinton more than the GOP Congress -- a fact that has to make Republicans hopping mad. The boy across the street borrowed their bat and hit a home run, and now they want to take it back and go home.

Lost amid the noisy taking of bows, however, is the question of whether a tax cut is the right thing for America at this time. A lot of people beyond the Beltway, both Democrats and Republicans, think that the whole tax scheme should be rethought and simplified rather than made more complicated with new types of deductions.

The notion of the flat tax -- posited by presidential candidates from both major parties in each of the last two primary campaigns -- is one that makes sense to a lot of Americans. Yet once the primaries are over, this notion gets shoved on the back burner for four years. Many politicians can see the firestorm that would erupt if such a plan were enacted -- mostly coming from those who have taken advantage of loopholes for years, and from H&R Block and friends. It would also play havoc with the entire governmental tax bureaucracy -- the IRS would have much less to do (and would need a lot fewer employees) if everyone simply paid 10 percent of their income.

A sizable segment of Americans are willing to take that chance. One of the most widely-held misconceptions in America is that people hate paying taxes. Nobody's thrilled to death about it, to be sure. But the real truth is that people hate the current system because it's unfair. They read stories about fat cats making millions and paying pennies in taxes, and that makes them angry. They don't begrudge people making money, but they do think we should all pay about the same percentage in taxes. If I have to give up 15 percent of my income, at least make Bill Gates give up 15 percent of his, too.

While Steve Forbes didn't get terribly far in his 1996 quest for the Republican nomination, there were signs that his flat-tax stance was resonating with voters in the early primary states. While the president and the GOP are scurrying around looking to come up with new ways to jerry-rig the tax code, maybe Al Gore should take note -- a candidate who embraces the flat tax in 2000 might very well have his own fireworks show on election day.

©1997 Richard Craig. All rights reserved.

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