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In IRS Abuses, Republicans See a Capital Gain

By Clay Chandler and Eric Pianin
Washington Post Staff Writers
Wednesday, October 1, 1997; Page A01

Congressional Republicans say they hope to expand a week of hair-raising allegations of abuse by Internal Revenue Service officials into a larger crusade to remake the nation's entire tax code.

Just yesterday, House Speaker Newt Gingrich (R-Ga.) said he wants to launch a six-month "national debate" on alternatives to the current income-based tax system, and promised legislative action before the end of 1998.

But if the past is any guide, that effort won't be easy. While tapping the public's general resentment of the Tax Man is a relatively simple matter, Republican leaders learned two years ago that it is far more complicated to translate that hostility into broad-based support for specific tax reforms.

Even as they gin up this ambitious effort, GOP strategists are wrestling with the same political problems that thwarted their efforts to make fundamental changes in the tax code after their party swept control of Congress in 1994.

That debate splintered the GOP into competing factions: Some Republicans, among them House Majority Leader Richard K. Armey (R-Tex.) and presidential candidate Malcolm S. "Steve" Forbes, championed a flat tax that would tax individuals at the same set rate beyond a certain income threshold; some, including House Ways and Means Committee Chairman Bill Archer (R-Tex.), favored a national sales tax; others advocated more moderate variations of the current system.

That debate showed too that as soon as politicians moved from attacking the income-based tax code to a substantive discussion of what type of tax system should replace it, they were as likely to win the public's ire as its approval.

Voters' initial enthusiasm for the flat tax, for example, cooled quickly as they learned that the proposal would wipe out cherished deductions for mortgage interest payments, charitable contributions, state and local tax payments and investment in municipal bonds.

The appeal of a national sales tax also faded as experts warned that, together with state and local levies, it might mean sales tax rates in excess of 30 percent.

And a carefully constructed consumption tax proposal touted by Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) – as a response to business pleas – proved too complicated for politicians to explain.

Perhaps most telling was the conclusion of a tax reform panel established by Gingrich and then-Senate Majority Leader Robert J. Dole (R-Kan.). After a lengthy inquiry, the commission, led by supply-side champion Jack Kemp, issued a gauzy endorsement of the flat tax concept. It urged a "generous" personal exemption, as well as exemptions for homeownership, charitable contributions, investments and even payroll taxes. But the group conspicuously avoided detailed recommendations about how a flat tax should be structured. Private analysts estimated that preserving all the breaks it favored implied a flat tax rate of at least 25 percent.

When Dole finally clinched the 1996 GOP presidential nomination, he called only for a "flatter" tax code, but deferred proposing specific changes until after the November election. The centerpiece of his campaign was a 15 percent across-the-board cut in personal income taxes that would have lowered federal revenue by $548 billion. But his plan would have left unchanged the basic architecture of the current system.

The most significant tax change since 1986 occurred this summer when Republicans eagerly joined Democrats in approving a melange of "targeted" tax cuts for families, students, investors, homeowners, businesses and other special interests that added hundreds of additional provisions to the internal revenue code. Although the total effect was relatively modest, some of those provisions are so complicated that Washington's most highly paid tax specialists are still struggling to figure them out.

Sometimes it seems that the evils of the code are the only thing Republicans can agree on. "What we are going to do, starting this fall, is ask every American taxpayer . . . to take a look at the alternatives," Gingrich said. "And hopefully by April 15th we can form a consensus around a major, decisive tax reform that we could move next year."

Of course, the search for that consensus never stopped. Forbes is again stumping for his flat tax proposal. Armey, who hasn't given up on the flat tax, and Rep. W.J. "Billy" Tauzin (R-La.), who favors a national sales tax, are planning to tour the nation debating their ideas. Meanwhile, Republicans in both chambers have taken to sporting "Scrap the Code" buttons as a symbol of their determination to yank out the income-based tax system "by its roots."

Gingrich yesterday promised that Republicans would approach reform from the bottom up, carefully sounding out public opinion before endorsing any specific plan. He contrasted that approach to what he depicted as an arrogant and heavy-handed attempt by the Clinton administration to ram health care reform through Congress in 1993.

Many Clinton administration officials, though, think the comparison with their failed bid to reshape the health care system is just right. They regard the debate over fundamental tax reform to be as much a minefield for Republicans as health care proved for them, and they seem more than happy to let their GOP opponents march right in.

Thus, while the White House is scrambling to demonstrate its support for improving management at the IRS, administration officials repeatedly have expressed skepticism toward Republican calls for more far-reaching tax reforms.

Archer, like Gingrich, is urging the party to forge a consensus on taxes that would become the GOP "battle cry" of the 1998 congressional campaign. But in an interview Monday, he expressed doubt that Congress will take up legislation to overhaul the tax system next year.

"I think it's conceivable we will have a legislative compromise next year," Archer said, "but I think it's more likely we will have a compromise that we will push for in 1999."

© Copyright 1997 The Washington Post Company

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