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Will The Republicans Trip Over Tax Reform?

By Clay Chandler
Washington Post Staff Writer
Sunday, August 13, 1995; Page H01

Some Republican pollsters and strategists are warning that GOP efforts to press tax reform in next year's elections could backfire by appearing to hand new benefits to wealthy Americans at a time when the incomes of most voters are stagnating.

Pushing tax reform to the top of the political agenda is a strategy with "many minefields for Republicans," cautioned GOP pollster Fred Steeper. The tax reform movement, he said, thus far has been "initiated almost entirely by the {Republican} leadership" and bears little connection to the core concerns of voters.

The main danger, as Steeper and other GOP strategists see it: A botched Republican tax crusade could make Republican candidates an easy mark for Democrats seeking to vilify them as lackeys of big corporations and the super-rich.

As they monitor the unfolding tax reform debate, GOP strategists see a host of potential pitfalls:

Reformers may be overestimating the extent to which the average taxpayer is frustrated with the current system.

Leading Republican tax reform proposals would scrap the home mortgage interest deduction and a raft of other tax breaks cherished by the middle class.

Some Republican reformers are challenging the long-held notion that the tax code should be "progressive," requiring the rich to pay a higher percentage of their income in taxes than the poor. But opinion surveys and focus groups suggest this idea remains firmly rooted in the minds of many middle-income taxpayers.

Some GOP strategists dismiss such skepticism as self-defeating. "We are trying to make dramatic changes in the way the government is run," argued Neil S. Newhouse of Public Opinion Strategies, a leading Republican polling firm that is working for the presidential campaign of Senate Majority Leader Robert J. Dole (R-Kan.). "Nearly everything we're doing is politically dangerous. . . . It's all high risk, but it can also be high payoff."

But even optimists acknowledge the tide of anti-Washington sentiment that swept Republicans into control of Congress last November could be turned against them should a Republican-led effort to overhaul the tax code be perceived as a cover for federal giveaways at the expense of the middle class.

"Voters don't trust politicians from either party when it comes to taxes," warned Steeper, who is doing work for the presidential campaign of California Gov. Pete Wilson (R). "The minute any politician says the word taxes,' voters get suspicious – even if the very next word out of his mouth is lower.' "

Indeed, President Clinton's advisers have urged him not to offer a tax reform plan of his own, concluding that the issue holds more political risk than opportunity. Many Democrats are hoping tax reform will blow up on Republicans just as health reform tripped up Clinton and the Democrats two years ago.

In raising tax reform as a campaign issue in 1996, Republicans are "playing with fire," argued Democratic pollster Stanley Greenberg, Clinton's pollster in his 1992 campaign. Lining Up on the Hill

Hazards notwithstanding, the tax reform movement is gathering momentum fast on Capitol Hill. Dozens of prominent Republicans – including House Majority Leader Richard K. Armey (Tex.), Senate Finance Committee Chairman Bob Packwood (Ore.), House Ways and Means Committee Chairman Bill Archer (Tex.) and presidential candidates Sens. Phil Gramm (Tex.), Arlen Specter (Pa.) and Richard G. Lugar (Ind.) – have endorsed various reform plans.

Meanwhile, House Speaker Newt Gingrich (R-Ga.) and Dole, the current frontrunner for the GOP presidential nomination, have directed former housing secretary Jack F. Kemp to lead a commission to recommend tax reform policies for the party.

The major Republican proposals call for the most sweeping changes in the nation's tax laws since the federal government adopted an income-based tax system at the turn of the century. To hear reformers tell it, such bold changes are necessary because voters have grown sick and tired of the complexity, intrusiveness and unfairness of the current income-based tax system and are demanding it be scrapped. The Public's Priorities

But experts say gauging voter dissatisfaction with the tax system is a slippery business. "I'm not sure we have enough survey data to understand the public's priorities" on tax issues, said Karlyn Bowman, a polling specialist at the American Enterprise Institute, a conservative think tank.

Many opinion surveys suggest voters may not be particularly upset about tax issues – and that their attitudes about the need for tax reform haven't changed significantly since the last major overhaul of the tax code in the mid-1980s.

The subject of taxes almost never figures prominently when pollsters ask Americans to rank what issues most concern them. In a February poll by the Gallup Organization, for example, tax issues ranked 15th when respondents were asked to name "the two or three biggest problems facing the country," being cited by only 5 percent of those questioned.

Polling data indicate that voters are open to the idea of making bold changes in the tax code at least in the abstract. A Time/CNN survey conducted by Yankelovich Partners Inc. in March found that 56 percent of those polled said they favor making "major changes" or "completely replacing" the current tax system. The Issue of Fairness

But what emerges most clearly from focus group discussions with middle- and low-income taxpayers, strategists from both parties agree, is that voters' biggest tax gripe isn't that they pay too much or that they spend too much time filing out their tax returns. Rather, it is that the current tax system favors wealthy taxpayers and big corporations who can afford to hire high-priced experts to exploit its arcane loopholes.

"The system's complexity rendered it unfair to nearly everyone . . . except the rich and powerful, who had many tricks – and hired guns – to help them avoid taxes that ordinary people have to pay," concluded Republican pollster Kellyanne Fitzpatrick in a report summarizing attitudes of 14 middle-income taxpayers from the Baltimore area who participated in a recent focus group conducted for Americans for Tax Reform, an alliance of state tax advocacy groups. Sales or Flat Tax?

Proponents of the national sales tax and the flat tax contend their proposals offer candidates a ready answer to such suspicions. In theory, both approaches would do away with loopholes.

Under a national sales tax – an approach favored by Lugar and Archer – rich and poor would pay the same percentage in taxes of the goods and services they purchase. Under a flat tax, all households would be taxed at the same fixed rate beyond a minimum income level. Supporters of some type of flat tax include Armey, Dole, Packwood, Gramm, Specter and former Tennessee governor Lamar Alexander, another Republican presidential aspirant.

GOP political strategists who have tested tax reform ideas in focus groups say the conceptual simplicity of both the sales tax and the flat tax has strong intuitive appeal to voters. Response to the flat tax, many said, is particularly positive. "It's like a light bulb that goes off in their head," said Republican strategist Frank Luntz, who helped design the "Contract With America" used by GOP House candidates last November.

Still, Republican consultants said they wonder how well the parties' tax reform proposals would withstand voter scrutiny when translated into specific policy proposals. Overwhelmingly, party strategists stressed the importance of allowing ample time to explain GOP tax reform proposals to the public.

"There are many of us who believe that this is a good issue to be raised in 1996, but not acted on until 1997," said Linda DiVall, whose firm, American Viewpoint, is working for the Gramm campaign.

National sales tax plans, for example, suffer from one glaring political liability: If the Treasury is to collect enough revenue through a sales tax to keep the deficit from widening, the rate might have to be set as high as 20 percent, triggering "sticker shock" among voters.

And many economists contend a national sales tax and the leading Republican flat tax proposals would be "regressive," shifting more of the tax burden onto the poor and middle class.

Under a national sales tax, high-income families' tax payments would fall from current levels as a percentage of their total income because the wealthy tend to save. Low and middle-income families, by contrast, tend to spend – and would therefore have to pay taxes on – nearly all their annual earnings. Middle-Class Burden?

Many economists believe Armey's proposed flat tax – which would eliminate the home mortgage interest deduction and require no tax payments on income from investments in stocks, bonds or property – would add substantially to the tax burden of the middle class.

A study by the Treasury Department found that, on average, Armey's plan would result in a tax cut for households with income exceeding $200,000, while raising taxes for households earning less than $200,000. Armey has disputed the Treasury estimates, but not the proposition that his proposal would be less progressive than the current system.

Democratic strategists said Republicans choosing to endorse an Armey-style flat tax would be offering challengers an easy political target. Several noted that New Jersey Republican Garabed "Chuck" Haytaian was forced to withdraw his commitment to the flat tax almost as soon has he announced it in his unsuccessful campaign for the Senate last November, after his Democratic opponent, Sen. Frank R. Lautenberg, assailed its proposed elimination of the mortgage interest deduction.

"We've done the political test case on the flat tax, and this thing is a big loser," said Democratic political consultant Mark Mellman, who advised the Lautenberg campaign.

In opinion surveys, receptivity to a flat tax varies widely, depending on how the question is posed. An April NBC News/Wall Street Journal poll found that 56 percent of those asked favored a "graduated income tax system in which people with higher incomes pay a higher tax rate" while 40 percent favored a flat tax "in which everyone pays the same rate regardless of income."

But a Newsweek survey, conducted that same month, found that only 27 percent of those polled expressed support for the "current system – with tax rates from 15 percent to 39 percent and all existing deductions, credits and exemptions," while 61 percent favored some form of flat tax that offered lower rates but but did not limit any deductions.

It remains unclear how well voters understand the concept of a flat tax. Nearly seven in 10 respondents to a February CBS News/New York Times survey said they had never "heard or read anything" about the flat tax.

Many voters say they favor major change or complete overhaul of the current system . . .

Question: If you had to choose, would you rather see the current federal income tax system replaced by a completely new tax system, would you rather see major reforms made to the current system without completely replacing it, or would you rather see minor reforms made to the current system?

Major changes – 34%

Minor changes – 34%

Completely replace current system – 22%

No changes – 3%

Don't know/no opinion – 7%

SOURCE: Time-CNN poll conducted by Yankelovich Partners Inc. of 800 adults from March 29 to 30, 1995 . . . but few cite tax matters among their top concerns about the country overall. Question: What do you feel are the two or three biggest problems facing the country today?

Crime 42%

Unemployment 20

Health care/insurance 19

Drug abuse 18

Poverty, hunger, homelessness 15

Education 12

Economy 10

Dissatisfaction with government 9

Budget deficit 9

Immorality 8

Welfare system 7

Youth 6

Immigration 6

Military involvement 5

in other countries

Taxes 5

SOURCE: Chicago Council on Foreign Relations poll of 1,492 adults conducted Oct. 7 to 25, 1994 by the Gallup Organization

The number of voters who think they are taxed excessively appears to have risen last year. Question: Do you consider the amount of federal income tax you have to pay as too high, about right or too low?

March March March March April Dec.

1990 1991 1992 1993 1994 1994 Too low 2% 2% 2% 2% 1% 1% About 31% 37% 39% 41% 42% 30% right SOURCE: Gallup Organization surveys

And many say they favor replacing the current income tax system with some form of "flat tax." Question: Which one of the following three tax systems do you most prefer: a) the current system – with tax rates from 15 to 39 percent and all existing deductions, credits and exemptions, or b) a flat tax system where every person and corporation pays the same flat rate – about 20 percent – with only deductions for home mortgages and charitable contributions, or c) a flat tax system where every person and corporation pays a flat rate of 17 percent – with no deductions, credits or exemptions at all?

Current system 27%

Flat tax system, about 20 percent 32%

Flat tax system of 17 percent 29%

Don't know/no opinion 12%

SOURCE: Newsweek poll conducted by Princeton Survey Research Associates of 724 adults April 6 and 7, 1995

But how familiar they are with the idea of a flat tax isn't clear.

Question: Have you heard or read anything about the "flat tax" proposal being considered by Congress?

Heard or read 34%

Not heard or read 66%

SOURCE: CBS-New York Times poll of 1,190 adults conducted Feb. 22 to 25, 1995.

© Copyright 1995 The Washington Post Company

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