Back on July 30, when House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) assured a National Press Club audience that tax reform was very much alive, he warned that he was talking about a compromise.
"The art of politics is finding the center," said Rostenkowski, who is a pretty artful politician. "The axiom that follows is that no proposal, no matter who's the author, can survive a floor vote unless it comes out of committee with a hefty majority of Democrats and Republicans."
After weeks of wheeling and dealing, Rosty brought a major revision of the tax code out of his committee with a solid majority. His bill would broaden the tax base sufficiently so that both individual and business tax rates would be lowered dramatically. Yet, by closing certain business loopholes and imposing a minimum tax, it shifts more of the total burden from individuals to the corporate world.
Is this tax reform? The editors of The Post -- and possibly others -- have long since abandoned the word "reform" to describe the effort, preferring "revision" as more accurate.
Certainly, measured against some ideal, where every dollar earned is taxed in the same way and loopholes are nonexistent, the Ways and Means Committee's package cannot be considered reform. Even compared to President Reagan's two reform proposals -- especially the first, known as Treasury I -- the Ways and Means product falls short. And nothing about it bears any relationship to "simplification."
But as Joseph J. Minarik of the Urban Institute observed wryly, "Anyone holding out for the ideal was setting himself up for a bleak Thanksgiving." The view of longtime tax reformers such as Minarik and Joseph A. Pechman of the Brookings Institution is that if tax reform means taking a messed-up system and moving it in the right direction, what Rostenkowski has accomplished is in fact reform, albeit awkward and incomplete.
For example, the Rostenkowski proposal preserves the highly controversial deduction of state and local income taxes. If that had not been done, there would have been no bill. Moreover, the proposal does not limit the tax deduction for mortgage interest on second homes, and it continues to allow generous deductions for entertainment "expenses." Says Pechman: "I would have liked something better. But they've broadened the base and lowered the rates. That's quite a constructive step."
Significantly, the proposal does scrap the investment tax credit -- a huge bonanza for corporations -- and makes significantly more restrictive business' ability to take excessive depreciation deductions. That change by itself makes the bill "a big plus," according to Northwestern University economics professor Robert Eisner.
The real question at this stage is whether Rostenkowski's political solution can survive. It's not at all clear that President Reagan will readily accept a top individual rate of 38 percent. Although well below the current 50 percent maximum, it is three points above the 35 percent top that Reagan had set as an absolute requirement. On the other hand, after having challenged the Democrats to cooperate on tax reform, the president may not want to be blamed for killing the bill, as some of his aides would like him to do.
Beyond that, Rostenkowski has solidified the opposition in the business community by placing the top corporate rate at 36 percent, compared to 33 percent as recommended by Reagan. "We are (now) profoundly lukewarm," said Jack Albertine of the American Business Conference, which, of all the busness lobbies, had been the least unfriendly to tax reform. He worries that the overall impact may be to interfere with economic growth.
Under the terms of Treasury Secretary James A. Baker III's reform proposal, the boosted tax bill for business would have been $122 billion over five years (less than Donald Regan's $165 billion). Rostenkowski, says Albertine, raises the ante to $138 billion.
In the Senate (assuming passage of the bill in the House), business lobbyists will be pressing for a value-added tax (to be renamed "business transfer tax") that would allow the corporate tax rate to slide back to 33 percent. And the business community would also like to erase Rostenkowski's boost of the capital-gains rate from 20 to 22 percent.
Senate Majority Leader Robert Dole and Senate Finance Committee Chairman Robert Packwood would be happier this Thanksgiving Day if they didn't have to face the tax reform question. They don't want to choose between their business supporters and Reagan's commitment to tax reform.
Thus, for the moment, Rosty has achieved his main artistic goal: the Democrats can claim to have produced a reasonable stab at tax reform, benefiting lower and middle-income groups as much or more than upper-income groups. And they cannot be accused by the White House of blocking a major Reagan initiative. Only the Senate Republicans can now earn that honor.