The Senate Finance Committee's tax reform bill is constructed on a principle of atonement. Reform in its current incarnation is supposed to be a trade-off: lower rates for fewer preferences. The committee likes the sweet of this but not the sour. Instead of reducing preferences, the senators in many cases have protected and even enlarged them.
However, to recapture some of the money they gave away, they would establish what are called alternative minimum taxes on both individuals and corporations. Instead of one income tax system for many payers, there would be two (as to a much lesser extent there are under current law). One of the early objectives of reform was simplification. This is what it has come to.
The minimum would be a limit on the use that any taxpayer could make in any one year of all (or almost all) the preferences in the code. This is how it would work: the taxpayer first would figure his regular tax. Then he would be required to fold back into income most of the amounts the regular code allowed him to subtract. He then would apply to the result the minimum tax rate -- 20 percent in the Finance Committee bill, 25 percent in the minimum that was passed last year by the House. If the minimum were more than the regular tax, the minimum would be what the taxpayer owed.
The political virtue is obvious. Members can vote on both sides of an issue. They can, as the Finance Committee has, vote to preserve the various allowances dear to the oil, timber, defense and other industries whose liabilities are particularly at stake in reform. Then, having also subjected most of those preferences to the minimum tax, they can go home and say with some justice that they voted to make every taxpayer pay a fair share. No more tales -- not as many, anyway -- of the rich and the Fortune 500 taking their taxes all the way to zero.
Nor is it necessarily illogical to say that, on the one hand, you like the preferences in the code -- the theory being that they are good ways to induce certain kinds of useful behavior -- while, on the other hand, you want to make sure for fairness' sake that everyone with income pays some minimal amount. Those goals can coexist.
The problem is that the committee has carried the process to an extreme. It has left so many preferences in the regular code that the individual minimum would be relied upon to bring in an estimated $20.9 billion over the bill's first five years, the corporate minimum $24.9 billion. The minimums become not a gentle corrective, but the cure for a hangover. They compensate for excess, are a crucial device for balancing the books and a major sop to conscience.
There's an easier way: cut back the preferences in the first place. It's called reform. The good senators should try it.