Bob Packwood set a poor example when the Senate Finance Committee began marking up the tax reform bill. The chairman moved to preserve the tax-reducing preferences most important to his home state's timber industry. Other committee members, no great fans of reform in any case, took this for the invitation that it was. They have gift-wrapped almost every section of the bill that they have taken up. It would now lose so much money that Mr. Packwood, for fear of further unbalancing the budget, has had to take the extraordinary and embarrassing step of suspending the public markup. He will try to kindle some sense of responsibility in the committee in a new round of closed meetings where supposedly the members will feel freer to vote their consciences. This is his first big test as chairman. His reputation and the bill -- the very concept of reform -- are both at stake.
It has never been clear that this bill could carry all the contradictory burdens put upon it. The original conception was to simplify the code and remove it as a factor in investment and other business decisions by thinning out preferences and using the proceeds to pay for lower rates. The president, however, has always liked the rate-cutting more than cutting preferences, and when the House bill passed, he complained there was not enough of the former, too much of the latter. At the same time, he has insisted that the bill be fiscally neutral, but has opposed the use of any new source of revenue to help make it so. The senators have tipped over a bill that was already seriously unbalanced.
There is talk now that the committee members, having demonstrated in public their fealty to the interest groups hovering around the bill, may relent a little in private. Even so, they are plainly unwilling to cut preferences as much as the House did. To reduce rates as much as the president wants. they will therefore have to find a large new source of revenue. Mr. Packwood has proposed a back- door increase in excise taxes (mainly on gasoline, alcohol and tobacco) and tariffs. There has also been mention of some broader energy levy and even a value-added or national sales tax.
But consumption taxes such as these are inherently regressive, and in the bill's present state it would be unconscionable to turn to them. The main virtue of both the House bill and the Senate bill thus far is that they would raise the income tax threshold, taking off the rolls millions of poor and near-poor households whose total federal taxes have been allowed to go up in recent years even though burdens for other groups were declining. Consumption taxes would negate these good effects. They would fall hardest on precisely the lower-income families the income tax provisions are meant most to benefit.
The bill is unbalanced not just because of unwillingness to cut preferences, but because the president is insistent that the top rate be cut from the present 50 to 35 percent. That is half what the rate was when he came to office, and so would be an important political trophy. But it is no magic number otherwise. Even the members of the Finance Committee must understand that taxing the poor to pay for a tax cut for the rich is wrong. The bargain was lower rates only to the extent of fewer preferences, and this should be kept. If a new consumption tax lies in the nation's future it should not be to balance the tax bill, but to restore some balance to the budget. That remains the No. 1 issue, from which the tax bill should not be allowed to detract.