Watch these congressional initiatives - Editorial

Nation's Business, May, 1996

They aren't in the headlines, but two bipartisan initiatives recently launched in Congress could have enormous impact on the American economy not too far down the road.

The House Ways and Means Committee has begun a yearlong exploration of whether the income-tax system should be eliminated in favor of some form of consumption tax. Committee Chairman Bill Archer, R-Texas, launched the hearings with a renewal of his commitment to "tear the income tax out by its roots."

On the Senate side of Capitol Hill, a drive to alert the nation to the long-range problems in Social Security financing has been started. Sen. Judd Gregg, R-N.H., said, "The purpose of these hearings is to pull heads out of the sand."

There is no more outspoken critic of the current federal income-tax system, nor anyone better positioned to do something about it, than the chairman of the House tax-writing committee. All tax legislation must originate with that panel.

Other lawmakers are calling for a flat-rate income tax with no exemptions or deductions, a flat rate with limited exemptions and deductions, or a less complex system that would retain some progressivity. But Archer is having none of it.

While those reforms would go a long way toward eliminating the complexities and economic disincentives of the present system, Archer says, they would maintain an income-tax system that special-interest groups could nourish back to its overly complex, anti-growth form.

At this early stage of the inquiry, Archer does not offer specific recommendations for taxing consumption, but many experts think the quest could lead to a value-added tax.

On the Social Security issue, the senators leading the effort see it as necessary to draw the attention of Congress, the White House, and the baby-boom generation to the fiscal crisis the system will eventually face, a crisis resulting from an increase in the number of retirees--who are living longer--in relation to the size of the taxpaying work force.

The problem has long been apparent (a Nation's Business cover story nearly 25 years ago described the financial and demographic trends threatening the long-range solvency of the Social Security system), hut crisis forecasts have drawn mixed reactions.

Many workers, particularly those farthest from retirement, believe the retirement program will go bankrupt before they are eligible for benefits and that discussions of rescue missions are moot.

Others assume that the government has no choice but to shore up the system no matter what the cost.

Gregg will preside over hearings as chairman of the subcommittee on aging of the Senate Labor and Human Resources Committee. The Social Security subcommittee of the Senate Finance Committee will also look into the financial structure of the system. Sen. Alan K. Simpson, R-Wyo., chairman of that subcommittee, said in urging baby boomers to take an active role in working for solutions: "Simply shrugging your shoulders and saying 'It's not going to be there for us' doesn't help."

Both the income-tax and the Social Security initiatives have a long way to go before specific legislative proposals are made. Business would welcome simplification of the present tax system and abolition of its economic disincentives and would generally favor Social Security improvements that did not impose added costs on employers.

While there is not, and perhaps never will be, business unanimity on ways to resolve these complex issues, the private sector will play a major role as the debate unfolds and will contribute to the formulation of actual legislation.

Congress should expect nothing less when it takes up government activities that involve collection of more than $1 trillion a year from the American people.