AN AWFUL LOT of superficial politics was played with the tax bills approved by the House Ways and Means and Senate Finance committees last week. In the House particularly, the Republicans continued to pursue their latest definition of legislative responsibility by boycotting most of the proceedings because they couldn't win; they say they are waiting until the Democrats have to deal with them to pass a bill over the president's veto. The Democrats responded to the empty room by fashioning an unabashed soak-the-rich tax bill. If you're going to get blamed for a tax increase, it may as well be on the other side's constituents.
Miraculously, the bills that emerged from all this posturing are not that bad. Their greatest achievement is that either would in fact raise $12 billion next fiscal year and more thereafter. Do you doubt the Treasury needs the money? To finance the epic deficits the administration has run up, the country has become dependent on money from abroad. To attract it, the dollar has to be kept high -- but to restore U.S. exports and a reasonable balance of trade, it has to be kept low. A new report of a continuing high trade imbalance leads to fear the dollar's value will be reduced and the stock and bond markets, also dependent on foreign funds, will plunge through the floor. That is the margin of error current fiscal policy has left us.
The best way to raise the sought-after $12 billion -- a modest target, and less than the government probably needs -- would be to increase income-tax rates. But the president and last year's tax reform bargain seem to have ruled that out. An alternative would be to increase the gasoline and other excise taxes, but the Democrats understandably didn't want to do this to the middle class and the poor. So they raised the money by wrench-work inside the tax code.
Some of the resulting provisions would be excellent social as well as tax policy. The House bill would for the first time limit the size of home mortgages against which interest deductions can be taken. The figure would be $1 million, more a symbol and a foot in the door than a revenue-raiser. But housing policy in this country is perverse: the richer a person and larger his house, the greater his subsidy through the housing sections of the tax code, while the programs for the poor are steadily cut back. The principle implicit in the $1 million limit is more important than the revenue result.
The Senate bill would raise the share of Medicare costs borne by the well-to-do by levying the Medicare portion of the Social Security tax on all wages, not just wages up to the Social Security cutoff point. The Social Security-Medicare tax now represents about a third of federal revenues -- a rising share -- and unlike the income tax is basically regressive. The Senate proposal would help correct that.
Two other features of the House bill inspire less enthusiasm. In last year's reform legislation Congress set a special trap for companies that report high profits to their stockholders but no or low profits to the tax collector. That difference is not always a good proxy for the taxes a company should pay; the trap has nonetheless been tightened. The bill would also repeal some forms of tax forgiveness that now encourage and indeed help finance corporate takeovers. The argument is that the government should not support what is often only manipulative activity that sometimes leads to concentration of economic power -- but not all takeovers are bad; this is a crude approach to a complex problem.
Still, the congressional Democrats have achieved something. All year the question has been whether they had the courage of their supposed convictions. At the committee level in both houses they have now shown they do. They have accepted responsibility for trying to clean up some of the wreckage of the last several years. The Republicans, whose policies brought on the wreckage, ought to join in