Flat chance?

Posted: Aug 09, 2006 10:28 PM

Politics, it's said, is the art of the possible. Small wonder, then, that most politicians leave such small footprints. After all, the "possible" is, by definition, achievable. To leave a mark on history, a politician must do the seemingly impossible.

John F. Kennedy left a mark by slashing tax rates in the 1960s, as did Ronald Reagan, who simultaneously won the Cold War and restored America's economy by reducing the burden of government.

Now Sen. Ron Wyden (D-Ore.) wants to craft a legacy. He says he wants to overhaul the federal tax code. And he claims he's willing to battle every special interest in Washington to do it. He deserves our support -- if he's willing to stay the course and do the job correctly.

Today's complex tax code proves there are no permanent victories in Washington. Two decades ago a bipartisan group of senators led by Republican Robert Packwood and Democrat Bill Bradley took an important first step on the road to tax simplification. The bill, signed in 1986 by President Reagan, eliminated numerous deductions and loopholes and reduced rates across tax brackets.

Since then, though, lawmakers have made some 14,000 changes to the tax code -- again making it ridiculously complex.

This is where conservatives and liberals ought to be able to find common ground. We should be able to agree that the tax code has one purpose: funding the federal government. There's no reason for Washington to use it to reward certain types of behavior, such as driving a hybrid car, installing energy-efficient windows or buying a home.

And it may well be that now's the time for revolutionary change. After all, Wyden's a fairly liberal senator from a "blue state," and his quest enjoys wide support on the other side of the aisle. GOP Sen. Richard Shelby of red-state Alabama has re-introduced his bill to implement a simple and fair flat tax. The Bush administration also favors fixing the code.

So what should the federal tax code look like? Reform will be effective only if it makes the code flat and fair. To work, it should:

•Impose a single flat tax rate, preferably under 20 percent, on all taxpayers.

•Eliminate special preferences, such as the deductions, credits, exemptions and other loopholes that make today's code so complicated.

•End the double taxation of savings and investment by getting rid of the death tax, capital gains tax, and taxes on savings and dividends.

•Get rid of "worldwide taxation" by taxing only profits earned within the United States.

•Be family-friendly by including a generous exemption based on family size (so a family of four wouldn't begin to pay tax until its annual income reached about $30,000).

Our current tax system is a mess and an embarrassment. It's virtually impossible for law-abiding citizens to be certain they've filled out their returns properly. A fair, flat tax could collect all the revenue the government needs and save Americans time and worry. We could file our returns on the back of a postcard.

Wyden says he wants to help deliver this fairer, flatter system, but that will require real persistence. He has, alas, disappointed tax reformers before. This is the same man who voted to repeal the death tax in 2002 but flip-flopped this year and voted to keep that pernicious tax alive. And if we look at the fine print of his tax-reform plan, it appears that he's better at rhetoric than real change. His so-called reform would leave tax rates at 35 percent and actually increase the double-taxation of savings and investment.

But if Wyden abandons class-warfare politics and fights for the right sort of reform, he could have a chance to join the political immortals. He also could help all taxpayers and improve the American economy at the same time. Fixing the tax code will be difficult, but it's not impossible. It's time to get it done.

Ed Feulner is president of the Heritage Foundation.