Tax man's terror

on Capitol Hill-Jay Harris was walking the streets of Capitol Hill like he stepped out of a men's fashion magazine, except for that obnoxious, out-of-place yellow sticker on his suit coat. It read "Kill the Death Tax." April always marks tax-filing time, but this April, Washington is weathering tax-cut season. Mr. Harris came from Durham, N.C., to join a team of 39 people who spread out across the House and Senate office buildings to meet with every single member of Congress for the National Association of Beer Wholesalers. He told WORLD, "Our group is largely made up of family businesses, and the death tax is a major issue for us." Family businesses often buy expensive insurance policies to prevent heavy "death tax" assessments from forcing the sale of their enterprises. The beer boosters are not alone. They have some surprising company. Black Entertainment Television chief Robert L. Johnson led a group of three dozen black business executives in arguing that the "death tax" punishes black entrepreneurs, many of whom have built their wealth from the ground up since the civil-rights advances of the 1960s. With an estate of more than $1 billion, Mr. Johnson estimated he pays about $200,000 to $300,000 in annual insurance premiums, and he said insurance payments equaled "transferring wealth out of the black community to the majority community." The House of Representatives heard the message, passing a bill last week that repealed the "death tax" by a margin of 274-154. The bill attracted 58 Democrats, seven fewer than last year, but President Clinton vetoed that bill. The tax-writing House Ways and Means Committee has churned out a file folder full of tax-cut bills this year, from President Bush's rate cuts, to crumbling the "marriage penalty" and doubling the child tax credit, to estate tax repeal. Many Democrats aren't happy at the prospect of all this potential tax money falling through federal fingers. New York Rep. Charles Rangel, the ranking Democrat of Ways and Means, argued that all these tax cuts add up to something too big. "It's almost like trying to get a big size-12 foot into a size-6 shoe. It just doesn't fit." Democrats are counting on the Senate to slow down the House's momentum. House Republicans aren't mincing words about the upper body's lack of enthusiasm. Ways and Means Committee spokesman Trent Duffy said, "The Senate has spent the last two weeks debating the PAC checks of 535 members of Congress. They ought to spend the next two weeks debating the tax checks of 130 million Americans who pay income taxes." While senators say they favor some tax relief, but not as much as the president, House Republicans say the Senate only has to pass one dollar in tax relief, so the houses can create a conference committee, come to some agreement, and send a bill to the White House. As the action shifts to the Senate, a few key players are emerging:

Lost in all of the protests that a $1.6 trillion tax cut is "irresponsible" is any acknowledgment of the historic size of America's current tax burden. The Washington-based Tax Foundation will soon release its annual estimate of "Tax Freedom Day" (last year's date was May 3), when the American taxpayer stops working for government budgets and starts working for himself. Foundation economist Scott Hodge told WORLD that "as a share of the economy, the tax burden is at its highest level since World War II, and it will remain at this level for the next 10 years." Even if the Bush tax plan passes, "it will not roll back Tax Freedom Day. It will only halt it in its tracks." Mr. Hodge argues that today's massive surpluses come at a heavy cost to taxpayers. Over the past eight years, income tax collections have grown by an average of 9.1 percent per year, 64 percent faster than the growth rate of personal income. If the growth rate of income tax collections had been held to the same 5.6 percent average growth rate of personal income since 1992, taxpayers would have saved $950 billion in taxes during those eight years. "The dirty little secret of why Washington is awash in revenue is the rise of the dual-income family, and real bracket creep is back," said Mr. Hodge. The Census Bureau estimates there are three million more full-time working mothers than 10 years ago, and 1.5 million more part-time working mothers, and those women are putting more and more families into higher tax brackets. Families with working mothers are now the norm, since 52 percent of families have dual incomes. Mr. Hodge says this demographic trend is not factored into the government's long-term surplus estimates. Another factor that could further increase tax revenues is the modernization of the Internal Revenue Service. Taxpayers filling out their 1040s at the last minute might greet that news as a mixed blessing-faster refunds, but also more effective audits. IRS Commissioner Charles Rossotti admitted to the Ways and Means Committee that "we are still not providing the level and quality of service that taxpayers deserve, nor are we collecting the taxes due efficiently." Just how much the IRS is still struggling with quality was proven by the Treasury Department's Inspector General Office. Over a four-day period this year, auditors made 368 random test calls to the toll-free IRS phone number and were unable to get access to IRS experts 37 percent of the time. When the auditors succeeded in getting through, the IRS incorrectly responded to 47 percent of the questions. That's especially embarrassing since the topics for the test calls were taken from the IRS's list of frequently asked questions. Despite the likely prospect of continued surpluses as far as the eye can see, whatever tax relief emerges from the nation's capital will be a slow, drawn-out trickle. The trickle may be so slight that few Americans are likely to notice any change when they go back to filling out their returns next April.