Imagine, if you will, a damsel in distress. She has been captured by an evil ogre, who is dragging her into a dark forest for unspeakable purposes. Riding to her rescue are two gallant knights, each possessing strength, virtue, and courage. But both knights are so anxious to be the hero that they fight each other for the privilege of defending the lady's honor. They are so consumed by this contest that the ogre is able to sneak off with the damsel, giving our story an unhappy ending.
Unfortunately, the same thing may happen with tax reform. Economists have long argued that America's multiple-rate, loophole-ridden tax code penalizes productive behavior. The good news is that most Americans, including a surprisingly large number of politicians in Washington, agree that the current system stinks. The bad news is that advocates of change are divided between proponents of a flat tax and proponents of a national sales tax. (For an outline of the debate, see "Rewriting the Code," July 1995.) And just as the squabbling between the knights allowed the ogre to escape, any disunity among the tax reformers will strengthen the ability of special interest groups to defend.the status quo.
Since congressional Republicans haven't decided upon a unified strategy for replacing the current Internal Revenue Code, flat tax and sales tax advocates will spend the next couple of years vying for the hearts and minds of Americans who want genuine reform. The flat tax advocates include House Majority Leader Dick Armey (R-Tex.), likely GOP presidential contender Steve Forbes, Citizens for a Sound Economy, and Grover Norquist's Americans for Tax Reform, while the Cato Institute and Citizens for an Alternative Tax System back a retail sales tax. Armey has introduced a bill that would replace the current income tax with a 17 percent flat tax. A proposal backed by Deputy Majority Whip Billy Tauzin (R-La.) and Rep. Dan Schaefer (R-Colo.) would replace the income tax with a 17 percent retail sales tax.
What makes this split particularly frustrating is that the flat tax and sales tax are virtually identical. Both would junk the current system. Both would restore fairness by taxing at one low rate. Both would eliminate all forms of double taxation, and both …