WASHINGTON -- With the Jim Jeffords defection casting a pall over Republicans, President Bush's aides last Saturday perceived insufficient enthusiasm over passage of tax reduction. The president was called back from Camp David to attend a hastily arranged White House victory celebration on a rainy holiday weekend. Administration officials pumped the telephone to convince skeptical conservatives how great this triumph was.
'Twas a famous victory, claimed the Bush team. Indeed, passage of an across-the-board cut and the first major tax relief in 20 years, beating the self-imposed Memorial Day deadline, exceeded conventional expectations. Why, then, did its passage not induce the euphoria that greeted the 1981 enactment of Ronald Reagan's tax program?
The cause was more than inclement weather and post-Jeffords depression. From its inception as a 2000 campaign initiative, Bush's tax plan disappointed supply-siders. Its tax cuts are delayed, the capital gains tax rate is untouched, the alternative minimum tax remains largely uncorrected and a refundable tax credit was added to continue redistribution of wealth. As for tax reform, the Internal Revenue Code becomes more rather than less complicated. To conservatives, the bill enacted is the beginning, not the end.
Saturday's pep rally in the White House East Room was arranged at the eleventh hour. Party activists, contributors and friendly lobbyists were asked to come and bring along their wives and children to applaud the victory.
The famously efficient White House switchboard located me at Fenwick Island, Del., Saturday, to announce a forthcoming call from National Economic Adviser Lawrence Lindsey. I was in frequent contact with Lindsey as a former White House aide and Federal Reserve governor, but this was the first time he had telephoned me since George W. Bush's election. He was short on new information but long on enthusiasm.
"We got everything," Lindsey claimed. They missed the 33 percent top tax rate that Bush wanted but did get 35 percent and did not drop anything in the Senate-House conference. Lindsey also enthused that in the Senate, the package passed 58 to 33, supported by 12 Democrats with only two Republican dissenters. He indicated no desire for a second tax bill soon but held out hope for basic tax reform during the Bush administration.
That hope is good news for supply-siders and other conservatives in Congress. The bill enacted Saturday follows the broad outlines of Bush's campaign proposal (largely crafted by Lindsey) that was disappointingly free of tax reform. While Bush's desire to return much of the surplus is shared by the vast majority of congressional Republicans, they long have felt that the president could broaden his base of popular support by embracing reform.
In truth, the nation's voluntary tax system is breaking down. Tax cheating is on the rise, and the Internal Revenue Service (IRS) appears helpless. Nothing has been done since 1986 to reduce the system's complexity. A flat tax, which once seemed about to become Republican policy, has fallen into disfavor.
Now seriously considered is something much more radical than the flat tax: a national sales tax plan called the "Fair Tax." It is truly radical. All income taxes and payroll taxes would be repealed (with the Constitution amended to prevent their reappearance). A flat sales tax on new property transactions, with no exemptions, would provide all federal revenue. Tax rebates would actually increase the comparative tax burden for the wealthy, who would gladly accept emancipation from IRS paperwork as a tradeoff.
It may sound utopian, but the plan commands impressive starting support in Congress -- including Democrats. Among the believers is one of Washington's most influential figures: House Majority Whip Tom DeLay. His grand design for transforming the nation's political culture includes tax reform that would minimize the impact of the governing class, especially the K Street lobbyists.
Bush is well aware of the Fair Tax, and is interested in it. Although it is not his normal style to lead risky crusades, potential rewards here are immense. His tax reduction was an indispensable start for a conservative Republican president, but its substance is really pedestrian. Passage of genuine tax reform would not require emergency calls to solicit East Room celebrations or favorable columns.