GOP Lawmakers Are Counting on Making Taxes Pay in 1998 Agenda

Congressional Republicans think they have found their escape route from the vital center of congealed consensus and dimmed differences between the parties. It’s an old horse refitted for new times: taxes.

In roughly equal proportions, opportunity and necessity are driving taxes to the center of the GOP agenda for 1998. Republicans sensed renewed opportunity in taxes this fall after the spectacular public response to the Senate Finance Committee hearings on Internal Revenue Service abuses and James Gilmore’s victory in a Virginia gubernatorial race dominated by his call for repealing the state’s car tax. And when the House just before recess unexpectedly voted down two of the GOP’s other putative election-year priorities--testing school vouchers and repealing federal affirmative action programs--a strong tax agenda became a necessity. Now many Republicans have a simple mantra for 1998: taxes, taxes, taxes.

The White House and congressional Democrats, now drafting a post-fast-track, forgive-and-forget common agenda of their own, haven’t finalized their response. But they are determined not to cede the field. That promises a collision next year that should begin to answer whether the parties can still use taxes to draw bright lines of distinction at a time when they have locked arms on a joint plan for balancing the federal budget.

Republicans are planning to advance their tax agenda across three fronts. They’ve made the most progress on legislation to restructure the IRS; after President Clinton abruptly dropped his opposition, the House last month voted overwhelmingly to place the IRS under an independent oversight board. The White House may balk if Senate Republicans impose even more sweeping changes on the agency. But the GOP faces its own constraints, because more radical ideas--such as switching the burden of proof to the IRS during routine audits--carry a substantial price tag in lost tax revenue.

Cost looms over the second leg of the GOP tax agenda too. Republicans want to follow last summer’s $95-billion, five-year tax break with further cuts this year. But they can’t afford more than modest reductions without violating the budget deal’s deficit targets. That leaves them exploring such ideas as relief for couples facing the “marriage penalty,” a loosening of the alternative minimum tax that bites taxpayers with many deductions, more cuts in the estate tax and a new exemption for income earned from savings. Those ideas may prove generally popular; but whether any have enough heft to drive a campaign-year debate remains to be seen.

Fundamental tax reform, the third element in the GOP strategy, passes the heft test. But it remains a long-term project with as much potential to bite as benefit the GOP. More and more Republicans now urge elimination of the progressive income tax. But they divide on how to replace it. One camp, led by House Majority Leader Dick Armey (R-Texas), wants to impose a single-rate flat tax; the other group, clustered around Rep. Bill Archer (R-Texas) wants to ring up a national sales tax.

During the 1996 GOP presidential race, the top five candidates all endorsed some version of the flat tax. But now the internal party balance appears to be shifting toward Archer’s sales tax.

With the flat- and sales-taxers jostling each other like Sharks and Jets, some Republicans are calling for a truce. Rep. Bill Paxon (R-N.Y.), a leader among House conservative dissidents, says the flat-versus-sales-tax argument is premature. He wants to break the impasse with legislation to sunset the existing tax code by Dec. 31, 2000 (though he’s open to a later date). That, he says, would both give the GOP time to make the case for change and focus the debate on alternatives. “Deadlines are what drive legislative discussion,” Paxon argues.

Paxon has gained momentum: He has nearly 100 co-sponsors, key GOP leaders have praised his idea and the potent National Federation of Independent Business is organizing grass-roots support. But many GOP strategists believe the party will think twice about voting to overturn the tax code without having a replacement in hand.

Indeed, the entire politics of tax reform may work better at the level of critique than cure. Americans may not like the existing system very much. But they appear even more skeptical of the alternatives. That’s the dynamic that sank Clinton’s vision of fundamental health care reform. It could prove just as damaging to GOP dreams of uprooting the tax code.

GOP pollster Bill McInturff is one of many Republican consultants urging caution. He considers the sales tax the fiscal equivalent of a self-inflicted gunshot wound: “the most dangerous idea you can ever imagine trying to sell as a Republican.” McInturff, who explored public attitudes about taxes for Bob Dole’s 1996 presidential campaign, says the flat tax remains a hard sell too: Not only does the public cherish many of the deductions it would sweep away, but “Americans remain very comfortable with the notion of progressivity.”

That’s why Democrats--who quickly folded to demands to restructure the IRS--are comfortable resisting the GOP tax-reform plans. The real question among Democrats is whether the party needs its own reform alternative. House Minority Leader Richard A. Gephardt (D-Mo.), looking to put a forward spin on his economic populism, has already drafted a modified flat tax that retains progressivity. But the White House is cool to the plan, and isn’t ready to concede that the tax code needs basic rewiring at all.

Clinton’s strategy for 1998 may lean more toward targeted tax cuts, shifting the debate toward further health care reform, and attacking the Republican ideas. As long as the parties remain divided, fundamental reform of the tax code remains unlikely. Changes of this magnitude demand bipartisan consensus. The 1986 tax reform measure had it and passed; Clinton’s health care plan and the 1995 GOP budget didn’t and died. For now, the key players on both sides still see tax reform as a way to separate the parties; reform won’t be a serious possibility until it becomes an opportunity to bring them together.