IT'S VERY INTERESTING, that tax plan of President Reagan's -- but it's not simplification.
Paying taxes under the president's plan would be simpler for some people, particularly those at the low end of the income scale who would not be required to file returns. But the tax code itself would emerge hardly less complex than ever.
The president has proposed many important improvements that would end shelters and the artificially rapid depreciation that underlies many of them. But closing the shelters and imposing minimum taxes, as the president's plan intends, would not raise much money. In contrast, the personal income tax rate reductions and expanded personal exemptions in Mr. Reagan's plan would be enormously expensive. To keep this legislation from turning into a gigantic tax cut, the president has asked Congress to end the deduction for state and local taxes.
The effect would be to shift the burden of taxation in this country, by a significant degree, away from the federal government and more heavily onto state and local governments. Most people do not think of the deduction for the real estate taxes on their homes, for example, as a tax shelter. This change will be more hotly contested than any other in this legislation. But it raises a lot of money -- and without it, there is no way to finance the lower tax rates that Mr. Reagan is promising.
Should this tax plan be called populist? The administration keeps using that word as though it were a compliment. Not quite. Populism feeds on resentment and suspicion. Perhaps Mr. Reagan is trying to harness some of those emotions, evoking public resentment against the present tax system -- "unwise, unwarranted and unfair," as he called it Tuesday night. He proposes a modest shift of taxation from individuals to corprations, and any good populist would applaud that. But among individual taxpayers, the fewest benefits would go to the people in the middle of the income ladder. The most substantial advantages would go to the people with the most substantial incomes, as the top rate came down from the pres.
Mr. Reagan enthusiastically offers an appealing vision of a country prospering under low taxes, in which everyone has an open invitation to grow wealthy. But there's not much relationship between high economic growth and the tax rates. The most recent example of a sustained boom, in the early and middle 1960s, began at a time when the maximum effective rate was 87 percent. Later in that period it was cut to 70 percent, which did not prevent the boom from ending -- as all booms must. The case for dropping the top rate below 50 percent now is anything but clear. But cutting the tax rates, not simplification, seems to be the central purpose of this enterprise as it is developing.