MISSOURI WATCH: THE STICKY WICKET OF POLITICS: CHANGING HOW TAXES ARE PAID

Whether it is entirely correct or not, it is often said the principal intent of the new Republican leadership in Congress is to replace the philosophy and sweep away the programs of the New Deal. Frankly, we suspect most Americans would be hard pressed to define those principles, much less enumerate the innovations of the Roosevelt era.

One change being proposed for voter reaction by congressional Republicans would sweep from farther back than FDR, however. Several contingents of the Republican Party, and more recently some Democratic stalwarts as well, have floated proposals to change in dramatic fashion the federal income tax. One would abolish it, replacing it with a "value-added" (that is, sales) tax. Another would keep the skeleton but make all rates the same -- the flat tax idea. After several Republican proposals were thrown up for voter inspection and reaction, even the House minority leader, our own Rep. Dick Gephardt, suggested a so-called flat tax plan, with less sanguine levies for more affluent taxpayers. As an aside, even though the St. Louis Democrat called his proposal a flat tax, it would be hard to convince a family with an income above only $50,000 that Gephardt was following any truth-in-labeling law.

Whatever the details, the various proposals would all replace a tax structure that has been in place since 1913, 20 years before the New Deal was shuffled and dealt.

The action approved in 1913 to tax income as a source of revenue was, at the time, as sharp a break with tradition as anything Roosevelt came up with two decades later. The nation's populist movements had long advocated such a tax. When an income tax was passed, though, it was constantly invalidated by the Supreme Court. Only when the 16th Amendment authorizing an income tax was ratified was such a tax possible and implemented. Following ratification, Congress moved quickly to adopt a tax at progressive rates. The income tax eventually became the mainstay of federal government revenue. It didn't take long for many of the states to follow suit.

Although there is widespread complaint about today's tax schedules, rates were highest and most progressive during and just after World War II. For several years a distinction was made between earned and unearned income. Coupon clippers had to pay at a higher rate than did working people, which is the opposite of current pressures to tax capital gains at concessionary rates.

The populists who worked hard for a progressive tax structure had as one object the easing of tax obligations on holders of real property. Tax should be paid on intangible wealth too, they contended. The second principle underlying the movement was the simple question of fairness---that the rich ought to be taxed at a higher rate than the poor. The income tax makes that possible.

Then and now, contentious issues arise as to the purpose and effect of a tax, any tax. First of all, a tax is a source of revenue. But any notion that a tax can provide revenue without having side effects, that it can meet the test of neutrality, is pure hogwash. Every income tax has three consequences: it generates revenue, it affects competitive relationships among businesses, and it alters the distribution of wealth and income.

The last of these is usually thought of in terms of how progressive the rates are. How fast rates escalate at higher levels is only half the story. Today's tax code is loaded with shelters and deductions. Because they pay off best in higher brackets, they undermine the progressiveness of the system. Also they can scramble competitive terms between business firms.

Tax deductions have another feature: they carry extremely high costs. One estimate is that they amount to $450 billion annually, twice the current federal budget deficit. One argument in favor of a flat tax is that all deductions would be ended, which has some appeal, but strains our sense of equity by taxing a waitress's $10,000 income at the same rate as a ball player's $3,000,000 or a radio-TV personality's $10,000,000.

The proposal to abolish the income tax and shift to a consumption (sales) tax as the principal revenue source is often justified on grounds that it can be collected with minimum slippage. Not only would there be no $450 billion tax break, there would be little or no tax avoidance, currently estimated at from $200 to $400 billion. Estimates on this vary widely.

It is fair to ask whether we are so incapable of managing our tax system that collectibility must overshadow all else. It's also interesting to note that those elected to oversee the present system now admit they're doing a poor job.

~Jack Stapleton of Kennett is the editor of the Missouri News and Editorial Service.