One can never be sure of anything on the Washington political scene. This is proven by the fact that tax reform, given up for dead two weeks ago, is not only very much alive, but now seems almost sure to pass in what could be the biggest rejiggering ever of the tax system.
If the Senate Finance Committee's radical bill overhauling the tax system does pass and is meshed with the Rostenkowski reforms that emerged from the House, it will be a long-overdue tribute to such tax reformers as Joseph Pechman of the Brookings Institution and the late Stanley Surrey.
Surrey, a Harvard professor who was named assistant Treasury secretary by President Kennedy in 1960, set the original guidelines for tax reform. His valiant efforts were battered by all-powerful special-interest lobbies. But the principles he, Pechman, Mortimer Caplin, Walter Heller and others laid down form the basis of what is emerging today.
"The standard of equity or fairness must, of course, be applied in the light of infinite variations. But the standard of fairness is real and compelling," Surrey said almost 30 years ago. How fresh it sounds today!
Successive changes in the tax law over the years were touted as reform or simplification. But they often created new ways for wealthy taxpayers to pass an unfair share of the tax burden on to middle-income or poor families.
Now, for the first time, we may be in reach of real reform. The maximum tax rate on personal income will be lowered to 27 percent, in exchange for broadening the tax base by dropping most of these loopholes.
This miracle, if it takes place, comes about because Sen. Robert Packwood (R-Ore.), chairman of the Senate Finance Committee, was beginning to suffer public humiliation at the hands of the press and of Democratic tax-reform advocates. They ridiculed his initial efforts in devising a tax bill that was nothing less than a new giveaway a day.
Packwood had become such a patsy for special-interest lobbies that The New Republic dubbed him "Senator Hackwood." For example, the chairman and his Senate panel had agreed to reduce the estate taxes paid by the wealthiest one percent of the population and to give manufacturers $3 billion a year in extra tax write-offs for plant and equipment depreciation.
"Packwood began to lose control over his own committee," says a Capitol Hill insider. "He was personally embarrassed, and as the Democrats started a campaign showing that Packwood had screwed up tax reform so badly that the Republicans might lose control of the Senate, Packwood realized that his own chairmanship of the Finance committee was threatened."
As Ralph Nader put it: "Packwood's reversal shows that there are maximal limits to the power of special-interest lobbies. What we saw was a huge implosion."
On April 23, at a breakfast session with reporters, Sen. Bill Bradley (D-N.J.) publicly noted that Democrats stood to gain huge political benefits from the likely end of tax reform. The Democratic National Committee was gearing up the charge that the Republican-controlled Senate had killed tax reform, after it had been skillfully steered through the House by Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.). Packwood, who is nothing if not a consummate politician, got the message and did something about it. The nation as a whole will be a beneficiary.
This is not to say that the new Finance Committee bill is perfect: it contains what one expert calls "a lot of garbage" -- for example, continued loopholes for the oil industry and a number of favors for Packwood's cronies. The more details that emerge, the less pristine it will seem.
And the bill hasn't yet survived the frontal assault of the same special-interest groups that defeated Surrey. You can be sure that the real-estate lobby will go all out to preserve its present favored tax treatment. And banks and thrift institutions, fearing the loss of a $15 billion flow of funds from the curbing of Individual Retirement Accounts, will begin a propaganda campaign telling people what they will lose under the Packwood proposal, not mentioning what they will gain from lower rates.
It's possible that in a final bill, the IRA loophole will be retained and the top corporate rate -- set in the Packwood bill at 33 percent instead of 46 percent -- bumped up by two points.
But give Packwood credit for his personal metamorphosis. He decided to turn to the theory of tax reform that Bradley and Rep. Jack Kemp (R-N.Y.) have been talking about for the past four or five years: cut out the loopholes and you can lower the top marginal rate. If this key principle dominates the final bill, it will show that politicians, on a bipartisan basis, can achieve what tax reformers had always struggled for.
President Reagan (for his overall leadership), Don Regan, Packwood, Bradley, Rostenkowski, Kemp and others will share the political credit if tax reform makes it this time. But all of them (and all of us) will owe a huge debt to the persistence of tax reformers symbolized by Stanley Surrey.