Tax reform -- a time for sharing necessary sacrifices

TWO Harvard Business School students, writing on the editorial page of the Wall Street Journal, remind us of one reason America needs tax reform. They say they spend an inordinate amount of time studying how to take advantage of the labyrinthine tax code instead of studying how to become business leaders.

That's a Catch-1040 (or Catch-1120) situation. Not to grab all that the tax laws allow would be imprudent management. But spending so much time on tax issues is itself a diversion from wise business management.

Can you imagine Henry Ford or Thomas Watson concentrating on tax avoidance instead of production-line efficiency or customer service? Or any Japanese or Korean business leader doing so? All defense, no offense.

One remedy obviously is corporate and personal tax simplification. That is what the future Harvard MBAs are telling us. But, unfortunately, the tax-reform lobby in Washington has virtually lost out to an ad-hoc coalition of other major interest- group lobbies.

Pragmatists may be right in saying, if President Reagan can't win the votes to revive the Rostenkowski package, ``reform'' may be dead for years. Tax-reform experts, some of whom have campaigned 40 years for simplicity and fairness, are loathe to let half a loaf slip away. The other half may look more like a loaf full of holes than no-holes Sunbeam bread. But the professional reformers fear they may have to wait another decade before enough reform pressure builds up again.

This seems to be putting fear above faith in the American electorate. Cynics argue that the public is getting what it really wants. The taxpayer may talk about reform and simplicity, they say, but what he/she wants is an easy 1040 form with no loss of exemptions or deductions.

Ditto Gramm-Rudman. According to cynics, the public rightly worried about superdeficits and megadebt, but was happy to see budget cutting steer around middle-income entitlement programs.

Such cynicism represents a failure in political leadership. The President and Congress ought to be telling Americans that the real issue is whether this generation will move to reduce debt and create incentives for saving, investment, productivity, and retooling of industry. Or, will it simply hug its perks and let its children and grandchildren pay for them -- with interest.

This is not a yuppie vs. Claude Pepper issue. It's not a zero-sum game in which either youth or pensioners must lose. It's a situation in which political leaders need to hammer home the idea that sacrifice must truly be shared by all groups if America is to regain worldwide competitiveness and preserve its standard of living.

That is not a selfish jingoist goal. The major nation that is not economically competitive is seldom economically cooperative. And, the nation with a declining standard of living rarely helps other nations raise their own living standards.

If President and Congress clearly explain to voters the need to avoid billing their own children for the cost of comfortable deficit cutting and comfortable tax changes, there is no reason to believe the public won't respond.

A sensible tax-reform program should create more saving incentives -- and pay for that loss of tax revenue by setting gradually tougher limits on the deductibility of consumer interest and mortgage interest on extra houses. It ought to retain the investment tax credit, which has stimulated so many new industries, creating millions of jobs. It could start to pay for the revenue loss by taxing gas at the pump.

A sensible revision of Gramm-Rudman in coming years might shave a few percentage points off the automatic inflation increases for social security and military and civil service pensions, and the indexing of income taxes.

Those extra sources of revenue would permit a less arbitrary slashing of social program and military budgets. Then, if arms control bargaining with Moscow should go well, cuts could grow and the deficit/debt effort accelerate.

Meanwhile, what about those two Harvard Business School plaintiffs? Will more fairness on tax reform and deficit-cutting do anything to redirect priorities for their generation of business leaders?

The problem is that corporate tax law is written by legislators far more likely to be lawyers than businessmen.

One answer might be to create a forum in which business leaders sit down with congressional committee staffers who actually draft bills. Their mandate: to take a long-term look at corporate law and the corporate tax code. Sensible consumer and environmental advocates might be present to prevent hanky-panky. And why not invite those two future MBAs from Cambridge -- or their fellows from Chicago and Palo Alto?

Earl W. Foell is editor in chief of The Christian Science Monitor.