America desperately needs tax reform.
Americans almost unanimously want tax reform.
They probably won't get it this year.
I know it's risky business to predict that Ronald Reagan won't achieve what he puts his mind to, and he clearly has put his mind to delivering significant tax reform. But it's hard to see how even the Great Communicator can pull this one off.
There is overwhelming public agreement that the present system is badly flawed, that what is needed is a combination of simplicity and fairness. But that is like saying everybody wants government to do the things government ought to do and stay out of matters it has no business in. In other words, fairness and simplicity are not the end of debate but the beginning.
Indeed, fairness and simplicity may be mutually exclusive concepts. For instance, it is simple to tax all income at the same rate, but hardly any American would think it fair. Each of us takes as a given that fairness requires treating the same income differently according to different circumstances. A single man, a childless living-together couple and a husband and wife with 15 children all have incomes of $30,000 a year. But hardly anyone would contend all three should be taxed at the same rate.
Mortgage interest exemptions make great sense to homeowners, but hardly seem fair to renters.
Everybody agrees that the cost of doing business is a legitimate deduction from taxable income -- that it is fair, for instance, that the taxicab operator who takes in $20,000 but spends $12,000 on gasoline and maintenance has a taxable income of only $8,000. But surely there will be major wrangling over what constitutes a legitimate cost of doing business. Advertising? Of course. Entertaining clients in order to secure and maintain their business? Well, that's the old football-ticket and three- martini-lunch loophole, isn't it?
As Barber Conable, the former congressman now at the American Enterprise Institute, said the other day, the things we call loopholes are in fact legislated responses to demands for fairness and other social benefits: tax-based investment incentives, for instance. "Equity is the enemy of simplicity," he said in an interview. "It's an illusion to believe that you can have a simple tax system that will apply fairly across a complex economy."
Conable doubts that we can have both simplicity and fairness in our tax system. My suspicion is that we are likely to get neither, at least not this year. Just imagine the problems facing the Internal Revenue Service in trying to figure out how much of the travel-and-entertainment expenses claimed by the employees of, say, General Dynamics are legitimate business expenses and how much are excessive under whatever rules Congress decides to enact. You and I can be sure that we are called upon to subsidize obscene examples of corporate high-living under the present system. But can we believe that the plan outlined by President Reagan will end the abuse?
In short, while Americans may be outraged at the unfairness of the present system, Congress will have to plow through endless arguments, eloquently made by an endless succession of special-interest lobbyists, over how to render it fairer. And we are likely to run out of time before the arguments are settled, since Congress probably will be in session only through October.
Congress, sensitive to the public mood, will pass something: some sort of minimum tax for big earners, some reduction in the tax rate for most Americans, some tinkering with the most outrageous loopholes and tax shelters, perhaps some limit on expense-account meals. But the combination will hardly add up to meaningful tax reform.