Wow! Real Tax Reform!

It all happened so fast. One minute, the long-cherished dream of streamlining and simplifying the cumbersome U.S. tax system seemed moribund, unable to withstand the hordes of lobbyists and influence peddlers arrayed against it. Then, shortly after midnight last Wednesday, the entire Senate Finance Committee was on its feet roundly applauding the chairman, Oregon Republican Bob Packwood. In the committee's offices down the hall, jubilant committee staffers uncorked a case of champagne. In an auditorium downstairs where the deliberations were heard on an intercom, an overflow crowd of lobbyists hissed.

Packwood, who until two weeks ago seemed the least likely champion of sweeping reform, raised his arms in triumph. Joining hands in the committee room celebration was an unlikely combination of allies: Russell Long, the shrewd Louisiana Democrat who for 37 years in the Senate has played the fine print of the tax code like a fiddler at a fais-dodo; Majority Leader Robert Dole, who once argued that tax reform was a lower priority than deficit reduction but who now promises to push through the measure on the Senate floor next month; and Bill Bradley, the New Jersey Democrat who for five years has been building the case for reform. Lobbyists representing interests ranging from real estate syndicators to restaurant owners vowed to descend on Capitol Hill to do battle. Acknowledging that brutal struggles lie ahead, Bradley, a former New York Knicks basketball star, warned, "Unlike many games I have played in, there are five periods. We've only finished the third." But even former skeptics were saying that reform now has the momentum. "Two weeks ago, tax reform was hanging by a thread," said Dole. "Now it's sewn up."

The Finance Committee plan would reduce taxes by an average of 6.2% for individuals by cutting their top rate from 50% to 27%, while eliminating or restricting most deductions. Increased standard deductions and personal exemptions would mean there would be far less incentive to itemize, thus greatly simplifying most returns. The top tax rate for business would be cut from 46% to 33%, but enough corporate loopholes would be closed to raise the total amount paid by business by about 20% in the first five years and keep the measure from losing revenue. Even if the committee's bill survives the upcoming battle on the Senate floor, it will still have to be reconciled with a version passed by the House last December, which also cuts rates and closes many loopholes but is less drastic than the Packwood plan.

Upon his arrival back in Washington after the Tokyo summit, President Reagan telephoned Packwood in Oregon, where the Senator was campaigning for his May 20 primary race. Said Reagan: "Your efforts moved us one giant step down the road toward meaningful, historic tax reform. We stand ready to work with you closely as your bill goes to the floor." In his Saturday radio address on the issue, the President declared, "America today stands poised to lift off into a new age of opportunity, powered by one of the most exciting economic changes | of my lifetime. Passed by an overwhelming 20-0 bipartisan vote, this proposal is really radical in scope."