IN THE FACE of strong administration opposition, Congress has apparently abandoned its earlier commitment to bring federal revenue more into line with federal spending. There will be no action this year and probably none next year on the three- year $73 billion revenue-raising package that the June budget resolution called for, and hence no real effort to curtail the coming string of $200 billion deficits. But Congress could support a modest loophole-closing bill that would, at least, keep its future task from growing between now and the time when it finally gets down to serious business.
Both House Ways and Means Chairman Dan Rostenkowski and Senate Finance Chairman Bob Dole are ready to cooperate on a small package that might, by Sen. Dole's estimate, raise at least $12 billion over three years. That's just a very small drop in the deficit bucket, but some of the reforms being considered would plug potentially huge revenue drains in the long haul. Others would help to make the tax code simpler and fairer.
The centerpiece of both committees' plans is expected to be curtailing sale-leaseback tax agreements that state and local governments have been exploiting to transfer part of their routine construction and operating costs to the federal Treasury. Congress never meant to provide local governments with this generous revenue source--the mechanism is so inefficient it would have been difficult to defend. It's just one of those inadvertent loopholes that clever tax accountants spotted in the law. 2 Another obvious candidate is a bill sponsored by Reps. Fortney Stark and Barber Conable allowing taxation of certain fringe benefits. Most fringe benefits--except pensions, health insurance and day care--are supposed to be taxed, but Congress has kept the IRS from enforcing the law. These benefits have been growing more rapidly than wages, and revenue losses are mounting. The situation is also unfair since fringe benefits are typically more generous, and the value of a tax-exemption much greater, for high-bracket taxpayers. The administration has itself proposed taxing some health insurance benefits, so it should find a proposal along these lines acceptable.
Other likely items include reforming the way in which certain life insurance companies and banks are taxed (or mostly not taxed), curbing the runaway use of tax-exempt bonds to subsidize developments and other private construction, limiting excessive depreciation write-offs and a host of small items that would simplify and clean up the tax code.
None of these is a flag-raising reform, but in the current situation that is a virtue. The administration is dead-set against any increase in tax rates. Most of the items in question, however, are not roll- backs of tax benefits that Congress consciously decided to bestow. They are the sorts of reforms that only the most ardent and undiscriminating supporter of Treasury-raiding could oppose.