When the new guru of the Grand Old Party waddled up to the Speaker’s chair and took his oath, the clock began ticking. The GOP had 100 days to fulfill a good measure of its “Contract with America.” Since House Speaker Gingrich has been planning his takeover of Congress for more than two decades, just about all the country’s problems should have been rectified by now. Alas, the 100 days are nearly past as we go to press and tax day is almost here, but the much-vaunted contract has done nothing to alleviate the income tax burden on the average American (although Gingrich and company are fiddling with the capital gains tax for their country club buddies). If the GOP is smart, by next tax day it will have forgotten about capital gains and jammed House Majority Leader Dick Armey’s proposal for a flat tax on income down President Clinton’s throat.
The income tax is a bad tax, but Armey’s proposal is a winner on several fronts. First of all, like other flat tax proposals, it simplifies the tax code enough that you can file a return on a postcard. The new tax rate would be 17 percent. A single man or woman could claim a personal exemption of $13,100, while a married couple filing jointly could claim $26,200. Each dependent is worth a $5,300 deduction, but other deductions would not be permitted. A family of four with an income of S50,000 would pay taxes on $13,200, or $2,244. A family of four with an income of $34,000 would pay no income tax at all. The rate of 17 percent would also apply to businesses, which would subtract revenues from expenses and pay a tax on the difference.
What’s more, Armey’s legislation, called the Freedom and Fairness Restoration Act, recognizes the fiction of “unearned” (meaning investment) income and would, as Gingrich’s contract promises, eliminate the tax on capital gains, an outlandishly unfair tax on investors. As things stand now, an investor can be clobbered three times by the IRS on one simple investment. Playing the stock market, for instance, means paving a tax on the wages used to purchase shares. Then the company pays a corporate income tax, a cost borne by the company’s owners, the shareholders. Lastly, the shareholder pays a capital gains tax on dividends from his investment.
Yet there is more to Armey’s proposal than the burden it lifts from a taxpayer’s shoulders. It ends withholding and requires Americans to write a monthly check to the Internal Revenue Service, a measure that would open taxpayers’ eves to the real cost of government. Withholding helps hide that cost. Moreover, Armey would cap federal spending and require the Congressional Budget Office to calculate the risk to public health and safety and cost of complying with new federal regulations.
Of course, the measure has its opponents, many of whom march behind the chariot of Citizens for Tax Justice. This group, which receives 99 percent of its funds from the AFL-CIO, breathlessly claimed that Armey’s proposal would balloon the federal deficit by a minimum of SI32 billion a year, which, if true, would certainly doom the proposal among liberal Democrats who might otherwise grudgingly support it. It turned out that GTJ tried pulling a fast one with some of Armey’s data. In fact, the proposal would increase the deficit only $40 billion, which as Armey says is a problem easily remedied with a few minor spending cuts. Professor Armey did not spare the Clinton administration’s goofy analysis a failing grade either. When the Einsteins in Clinton’s Treasury Department published their critique, Armey, an economics professor by trade, found a $500 billion error. Of course, Clinton’s myrmidons still say the proposal is not “revenue neutral,” which is true provided no steps are taken to cut federal spending severely. But that is socialist math for you.
Armey’s supporters abound. The most important are the hundreds of Americans who wrote to him after he published a piece about his proposal in the Wall Street Journal. They like it because they have become galley slaves chained to the federal government’s sinking ship. Working Americans spend 5.4 billion hours wondering how much they owe the government and worrying about an audit. Even worse, the average family now pays more in taxes than it spends on itself. Americans work from New Year’s Day past Independence Day to support government. As one man from New Jersey put it, “I am a senior citizen (WWII) who the President said when we were young we saved the world. I didn’t save it for the IRS.”
That is reason enough to back the proposal, but here are two more. Lawyers and accountants, who get rich translating the tax code for the untutored, get the shaft. “It’s hardly an accident,” business writer Robert Deitz says, “that over the past several years law and accounting firms’ revenues nationwide have almost doubled, at the same time the gross national product has grown by only about one-fifth that increase.” Interpreting the tax code, of course, means exploiting deductions that are really a form of social control. As Armey says, “through a bewildering array of deductions, exemptions and credits, the politicians who wrote the code tell us . . . that investing in a municipal sewer system is better than investing in the next Microsoft. . . . A government does not have the right to use the tax system to massively influence the economic decisions of its citizens.”
Common sense like that gave the GOP its majority in both houses. This begs the question of whether the Stupid Party will answer opportunity, which is banging down the front door, or roll over in bed and pull the covers over its head. Unhappily, a spokesman for Armey says the flat tax proposal will not land at the Ways and Means Committee until August, which means it does not stand a chance of coming to a vote anytime soon.
That is too bad, because Armey’s plan is faithful to the contract and benefits the little guys who earn less than S50,000 and do not have enough to invest to make a reduction in the capital gains tax an immediate, tangible benefit. They care less about what they will pay when they sell a house five years hence than about what they pay in taxes every week.
Guru Gingrich can prattle on about MegaTrends, Alvin Toffler, and capital gains all he wants. He can force Congress to obey federal laws because the rest of us do and never ask why the federal government should pass them or anyone should obey them in the first place. But all the fast talking and window dressing on Capitol Hill will not amount to a hill of beans if Americans do not get a break on the fee they pay for their franchise. Otherwise, they may tell the new pachyderm potentate and his bush beaters in the Stupid Party to pack their trunks and leave town.