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Examines political & economic debate, focusing on 1996 presidential campaign & flat tax.... More...
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Paper Abstract:
Examines political & economic debate, focusing on 1996 presidential campaign & flat tax.
Paper Introduction:
Tax reform is a major issue in the upcoming presidential election. The interest of the public was sparked by the campaign of former candidate Steve Forbes, whose rhetoric brought the concept of the flat tax to the forefront of political debate. Both Democratic President Bill Clinton and Republican candidate Bob Dole have publicly voiced their support for a fairer, simpler tax system. Although media attention has centered on the flat tax, legislators have proposed a wide variety of measures aimed at overhauling the country's tax code.
The problem with America's current tax system is that it is complex, burdensome, and some insist, unfair. Taxation in the United States has a long history. Unfair taxation was the rallying cry that led to the American Revolution. After its successful resistance to British authority, the Founding Fathers
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TheKemp Commission declared, "We believe the current tax code cannot berevised, should not be reinvented and must not be retained. Onepublic interest group estimated that former candidate Steve Forbes wouldsave at least $128, a year on his own taxes under a flat tax proposalsuch as the one he supported (Fineman, 1995, p. Clinton's counter budget proposal to the Republicanplan called for a tax cut of only $27 billion, a lower tax credit forfamilies, and a more modest cut in capital gains. One of the Republican options for tax reform would abolish theInternal Revenue Service, federal personal and corporate income taxes,capital gains taxes, and estate taxes. In the words ofone political analyst," . The basic argument of the Republicans for the flat tax is that itrepresents an example of supply side economics. an NBC/Wall StreetJournal survey showed Dole with a 48 percent positive rating on ethical andmoral values" (Borger, 1996, p. Congress passed this increase. In addition, thetemptation for legislators to amend the flat tax would be a continuingthreat; politicians are notorious creating tax breaks for theirconstituents. As one journalist put it, "All of a sudden you can't turn on your TV orwalk through an airport newsstand without the words FLAT TAX jumping out atyou" (Norton 41). Instead, Dole's political platform emphasizesthe need to balance the budget. CQ Researcher, pp. Tax reform is a major issue in the upcoming presidential election.The interest of the public was sparked by the campaign of former candidateSteve Forbes, whose rhetoric brought the concept of the flat tax to theforefront of political debate. But change is what thepublic wants. After its successful resistance to British authority,the Founding Fathers vowed that the issue of "taxation withoutrepresentation" would never resurface in America. . As oneRepublican legislator put it, "To follow the media these days, it wouldappear that there is only one proposal--the flat tax. No reductions in capital gains is proposed. Besides personalinformation related to the identity of the taxpayer, the only questions tobe answered on this simplified form relate to income, personal allowances,number of dependents, taxable wages, and taxes already paid. 41. Small investors stand to benefit too, however, not to the extent of thewealthy. In 1981, the Economic Recovery Tax Act (ERTA) was passed givingtax breaks to businesses, cutting individual taxes, and lowering taxes oncapital gains. 37). References Borger, G. 135). Democrats for Dole. U.S. The notoriety of the flat taxhas concomitantly sparked widespread debate about its merits amongjournalists, economists, politicians, and the general public. Critics of tax reform warn that it would lead to big changes in thecurrent tax system; they contend that finetuning the existing laws(reducing key deductions and credits) would result in gradual simplicationand ease the tax burden for the average citizen. Clinton appearscontent to "tinker" with the tax code instead of propose sweeping changes. Newsweek, p.37. In 1993, Clinton called for an increase inthe 31 percent top income tax bracket to 36 percent for couples withtaxable incomes of $14 , -$25 , and to 39.6 percent for those withincomes more than $25 , . Members of the Democratic party have put forth their own proposalsfor tax reform, however. This surge in economic activity is expectedto compensate for potential lost tax revenue from tax cuts. For example, House Minority Leader RichardGephardt has proposed a 1 percent tax plan on all but the wealthiest 25percent of Americans. 2 ). The American public has repeatedly voiced its dissatisfaction withthe current tax system. This group supports progressive taxation. An example of a group opposed to the flat tax is Citizens for TaxJustice. Becker both favor the flat tax; the U.S. (1996, February 19). Thepublicity that has resulted from discussion of the flat tax demonstratesthe media's ability to set the political agenda for the American public. U.S.News & World Report, p. The ensuing impasse inbudget negotiations resulted in temporary shutdowns of the federalgovernment. 43. 25 -253. Clinton'snew budget plan would cut taxes for middle-income taxpayers and close taxloopholes. (1996, April 8). Both Democratic President Bill Clinton andRepublican candidate Bob Dole have publicly voiced their support for afairer, simpler tax system. Where Dole suffers in terms of being presidential material is hisapparent lack of vision; and this is critical in promoting such a radicalissue as tax reform. The flat tax proposal set forth by Steve Forbes would have placed a17 percent rate on individual wage income minus a personal allowance; the17 percent rate would also apply to businesses. Although Bob Dole co-chaired the Kemp Commission, he has shied awayfrom endorsing a flat tax. Pros to Dole: It's the vision thing. 256-258. 135). Norton, R. Forbes's flat tax exemptedinvestment income, capital gains or inheritance. CQ Researcher, pp. economic growth regardless of arguments to the contrary byeconomic foes: "Their models aren't calibrated to measure the effects ofrevolutions, any more than the instruments on your car's dashboard couldcapture the effect of strapping a rocket booster to your bumper and firingit up" (Norton, 1996, p. Although proponents ofthe flat tax claim that it would get the IRS out of taxpayers' lives, thisproposal also has the potential of making tax avoidance easier. (1996, February 12). The wrong way to sell a new idea.Fortune, p. Lugar believesthat a flat tax would not represent a sufficiently radical solution to taxreform because such a tax would soon rival the complexities of the currenttax code due to the ever-present potential for future amendments. Toward this end, theframers of the Constitution endowed the legislative branch with the powerof taxation: "But because lawmakers are sensitive to the needs of theirconstituents, the tax code has become riddled with loopholes that oftenbenefit the most powerful interest groups" (Reforms, 1996, p. In May 1995, Dole and House SpeakerNewt Gingrich established a 14-member panel to study possible changes tothe nation's present tax system. The plan would eliminate alldeductions and loopholes, with the exception of mortgage interestdeductions. Forbes's plan would haveallowed no deductions. Taxation in the United States has along history. Bob Dole was one of the first of the 1996 presidential candidates togo on record in favor of tax reform. Nobel laureates in economics Milton Friedmanand Gary S. A flat tax might make Apr. One of these loopholeswould be the exemption of interest income. Republicans also argue that tax reform is needed to eliminateinequities in the current system. For example, investment income is subject to doubletaxation as are business profits. Probably the strongest argument for the flat tax is its simplicity.Proponents contend that it would vastly reduce the paperwork required tofile an average income tax return. (1996, March 22). The problem with America's current tax system is that it is complex,burdensome, and some insist, unfair. Although less than half of the respondents to this poll favoredthe flat tax, it is conceivable that a flat tax that retained deductionsfor home mortgages, charitable contributions and state and local taxeswould win majority support. Then byapplying one rate, say 17 percent, the individual can easily calculate hisor her tax or refund due. (1996, March 22). Citizens are weary and distressed by the continuing prospectof "politics as usual." Part of the appeal of Steve Forbes was that he wasconsidered a "Washington outsider." The public is eager for innovativealternatives, even radical ones like the flat tax. Although Dole is seeking to marginalize the impact of radicaltax reform for 1996, he admits that it will be a key issue for the nextpresidential administration, "There is no doubt that tax reform will be oneof the major priorities of the next Congress and the next president" (Talk,1996, p. Never-ending reforms. 25 ).Consequently, legislators have been responsible for numerous tax breaksbeing put into effect. Replacing the income tax witha national sales tax would have the expected benefit of causing savings andinvestment to increase, with resulting sustained economic growth. 243). 256). Business Week, p. 15trickier. News, 1996, p. The fairness of the flat taxalso appeals to this advocacy group; in the words of a spokesperson, "Theflat tax is fair in that it eliminates double, triple and quadrupletaxation" (Issues, 1996, p. Thus it is not surprising that the upper-income segment ofsociety generally favors the flat tax. Dole's name has been associated with tax increases as well as taxreform. 43). (1996, March 22). The panel, known as the NationalCommission on Economic Growth and Tax Reform, was headed by Jack Kemp. Unfair taxation was the rallying cry that led to theAmerican Revolution. tax system. 245). Flat tax, cold cash. Given the potential for abuse in both the flat tax and minor taxmodifications, a recommendation for resolution of the issue of tax reformshould involve an overhaul of the entire system. News & WorldReport, p. Dole has already gone on record assupporting a "fairer, flatter, simpler tax" (McNamee, 1996, p. Treasury Departmentargues that a flat tax would cost the federal government $138 billion ayear in lost revenue (Issues, 1996, p. 2 . Some political analysts believe that Dole is makingthe same mistake that George Bush and his campaign managers made in 1992;the former president failed to get in touch with middle America and tospark their imagination on potential new directions for the country. 255-256.----------------------- 3 (1995, December 18). A recent opinion poll ranked taxes third only tothe economy and jobs on the list of issues that worry voters (Issues, 1996,p. The flat tax promised by Republican taxreformers would consist of ten lines on a postcard. But that is only oneof several that we will carefully explore" (Talk, 1996, p. . A feature of the flat tax is that the taxrate on investment income would be zero. One of theinterest groups in favor of this type of reform is Citizens for a SoundEconomy. Thenational sales tax proposal was authored by Republican Senator RichardLugar, who dropped out of the presidential race in March. Although it is easier to maintainthe status quo and merely tinker with the tax code, it becomes increasinglyclear that Americans want more. . 43). 41). . Democrats enter fray. McNamee, M. In 1995, Clinton thwarted the plans of Republican lawmakers seekingto cut taxes via their "Contract with America." Clinton vetoed acongressional budget proposal that would have cut taxes by $245 billion,given families a $5 tax credit for each dependent child, and reducedcapital gains taxes. 243). Since the majority of wealthyindividuals derive a substantial portion of their income from investmentinterest, the flat tax would represent an economic windfall for this group. The flat tax also has grass roots support as well. Talk but no action? The present tax system would bereplaced by a 17 percent state sales tax on goods and services. Inthe assessment of one political analyst, "[Dole] looks too much like aWashington insider" (U.S. CQ Researcher, pp. Accordingto one critic, "The biggest snafus would occur in areas where the flat taxcreates new loopholes" (McNamee, 1996, p. A flat tax would correct the problem ofmultiple taxation. What is to stop merchants fromoffering their products to customers on extended interest plans and onlypaying federal taxes on a fraction of the actual cost? This group supports the flat tax on the grounds that it willresult in lower taxes and fewer regulations. The flat tax will undoubtedly remain in the public eye during the1996 campaign because of the unprecedented media interest it has generated. CQ Researcher, pp. Fineman, H. For taxpayers who have struggled for years withan unmanageable mountain of IRS paperwork, the flat tax postcard soundslike a Godsend. In the past forty years alone, about 3 major taxreforms have been enacted. Therefore, thecommission is unanimous: It is time to throw out the 7-million word messof tax laws and regulations and begin anew" (Kemp, 1996, p. 255). both [candidates] are just trying to figure out what they need todo to win" (Borger, 1996, p. Despite lack of support from Dole,Republican legislators insist that the flat tax will remain in thespotlight. 243-25 . The issues. The 1996 presidential election couldresult in a victory for Republicans, who have repeatedly called for anoverhaul of the U.S. Therecommendations, released by the Kemp Commission in January 1996, endorseda flat tax, although few details were offered about such a proposal. Although media attention has centered on theflat tax, legislators have proposed a wide variety of measures aimed atoverhauling the country's tax code. (1996, March 25). Forbes's aggressive media campaign was partlyresponsible for this blitz; the former presidential candidate spent over$3 million of his own money on his campaign, a significant portion ofwhich touted the benefits of the flat tax. Granted, as the election approaches, Dole ismincing words on the issue, but so is President Clinton. 135. The candidate who offers the best plan for the problem of reformingthe tax system is Bob Dole. (1996, March 22). Cognizant that anymajor economic change is likely to stimulate political debate, the publichas shown a willingness to take a wait-and-see attitude about tax reform.The reality of the matter is that an issue like tax reform is so complexand so far-reaching that no one has the ability to predict what the preciseeconomic impact will be. Politicians must recognize that taxation is and always will be animportant issue for the American public. The effectof such a system would discourage frequent amendments to the tax code tobenefit special interests or social agendas. For example,proponents of the flat tax claim that it is so revolutionary that it coulddouble U.S. (1996, March 22). President Clinton, like Bob Dole, considers tax reform a politicalhot potato, and has thus refrained from commenting on taxation specifics.Nor does President Clinton's fiscal 1997 budget plan hold hope for majortax reform nor for reconciliation with Republican legislators. One of the political drawbacks of the flat tax is that it wouldundeniably benefit the wealthy. 256). In contrast to Dole, President Bill Clinton has always beenassociated with tax increases. The Kemp Commission. The top income group would pay a graduated tax of upto 34 percent on earned and unearned income. Andone of the major differences between Dole and Clinton is that the seniorpolitician is considered a man of his word: " . A simplified format would have allowed anindividual return to be filed on a form the size of a postcard. 254-255. They believe the flattax would hurt middle-income taxpayers while benefitting the wealthy. Cutting taxes is expectedto unleash economic activity. CQ Researcher, pp. In 1982, with the country in a severe recession, SenatorDole sponsored the Tax Equity and Fiscal Responsibility Act (TEFRA) whichreversed some of the 1981 tax breaks.
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