Making His Big Pitch

By Ed Magnuson

Ronald Reagan has a folksy, homespun manner, but neither his policies nor his life-style quite conveys the image of a populist President. Yet there he was on national TV last week and in Colonial Williamsburg, Va., Oshkosh, Wis., and Malvern, Pa., assailing a tax code that "runs roughshod over Main Street America" and calling for an end to "unproductive tax shelters, so that no one will be able to hide in the havens privilege builds." Looking ever more fit and sounding ever more feisty, Reagan relished being back on the road, taking the offense in pursuit of the boldest initiative of his presidency: a sweeping revision of the nation's unwieldy and loophole-loaded tax code.

In a forceful 20-minute TV address, the President portrayed tax reform as nothing less than "a second American Revolution." If enacted by Congress, he predicted grandiosely, it would produce a "great new era of progress, the age of the entrepreneur." Reform is needed, he said, because the present tax system is "complicated, unfair, littered with gobbledygook and loopholes." Drawing a stark comparison between today's tax law and his proclaimed simpler and fairer plan, he implied that the choice for taxpayers will be | easy. In a phrase that became the slogan of his campaign-style blitz, Reagan exhorted: "America, go for it!"

The President's plan would affect virtually every one of the 96.7 million Americans who pay federal income taxes. It would reduce the 14 tax brackets to just three: 35%, 25% and 15%. The top rate would be a hefty 15 percentage points lower than the present maximum of 50%. Overall, the Treasury Department estimates, the plan would trim 5% from the tax bills of individuals by 1990; the biggest reductions would go to the very poor and the very rich. Reagan would eliminate many of the tax breaks that wealthy persons in particular use to shelter their income. At the same time, he would preserve three deductions that are immensely popular with the middle class and thus vital to the reform plan's chances of success: those for interest paid on primary home mortgages, for gifts to charity and for medical expenses.

The President held out the enticing possibility that by 1990 perhaps half of all taxpayers would not have to file any returns at all. Their tax bill, or refunds, would be figured by IRS computers working with income information already supplied by employers, banks and investment managers. As it is, Reagan noted, fully two-thirds of all taxpayers do not itemize deductions. One of his goals is to increase that to 75%.

Reagan says his plan is "revenue neutral," that is, in any one year it is supposed to increase or reduce federal tax collections no more than 1.5%, compared with what they would be under present law. To pay for the lower individual rates, Reagan would eliminate the deductibility of state and local taxes, including those on income, sales and property, and substantially increase the tax burden on business. Overall, corporations would pay 23% more.

Considering both the depth and breadth of the proposed changes, initial reaction was largely supportive. Among political leaders, at least, objections were tempered by a recognition that the public is strongly in favor of some sort of tax reform. Invited to provide a Democratic reply to Reagan's TV address, House Ways and Means Chairman Dan Rostenkowski, a political brawler from Chicago, praised Reagan for joining the tax crusade, linking him with such past presidential foes of upper-class privilege as Franklin Roosevelt, Harry Truman and John Kennedy, all Democrats. But Rostenkowski also warned that "Democrats will not give the President's reform plan a rubber stamp. If anything, it's a starting point." .

Specific provisions in the Administration plan indeed triggered strong complaints. Political leaders in states with high taxes bitterly protested the possibility of losing the deduction of state and local taxes. So too did the real estate lobby, which will suffer from the loss of property-tax deductions and new limitations on the write-off of interest paid on loans to finance second homes. Heavy industries faced with severe competition worried about the impact of losing accelerated depreciation and investment tax credits. But a bigger bite in business taxes was necessary to sell the fairness of the Reagan plan.

Whether the tax changes would, as Reagan contends, "unlock the doors to a golden future" for the U.S. economy is far from certain. The Treasury Department predicted that its enactment could boost the gross national product by an impressive 1.5% annually by 1995. Patrick Buchanan, the White House communications director, told TIME that the Reagan tax package is "the positive thrust of our economic program." But some economists were not convinced that the plan would stimulate growth. Lobbyists like Charls Walker, chairman of the American Council for Capital Formation, a business group that encourages savings and investment, were self-interestedly pessimistic. Said he: "I favor the cut in rates, but I'm concerned that these are funded in a way that could tip us in the direction of less growth and recession. They will raise the cost of doing business."

Overcoming the natural resistance to such a drastic shake-up in the status quo will not be easy. Prominent legislators from both political parties have been pitching their own reform plans for several years, mostly drawing glazed stares as they spelled out the dreary details. Only a President can effectively lead such a crusade, and perhaps only a President with Reagan's remarkable communications skills.

In Colonial Williamsburg, Reagan tried to stoke the fires of popular resentment against the inequities in the present system. Standing in front of the re-created Capitol, home of the House of Burgesses, once a center of resistance to British taxes on the colonies, he told a friendly crowd of 4,000, "The members who spoke in this Capitol said no to taxes because they loved freedom. They argued, 'Why should the fruits of our labors go to the Crown across the sea?' In the same sense, we ask today, 'Why should the fruits of our labors go to the capital across the river?' " The tax system, Reagan contended, "has earned a rebellion -- and it's time we rebelled."

In Oshkosh, the President stressed his claim that reform would be good for Main Street. Speaking to more than 10,000 enthusiastic, mostly middle-class listeners, Reagan argued that his plan "reduces the tax burden on working Americans and their families." He happily accepted a locally produced gift: a pair of Oshkosh overalls bearing the label TAX CUTTER-IN-CHIEF.

Reagan's emphasis at a large industrial park in Malvern was on the stimulus he claimed his proposals would have on high-tech industries. He cited his intention to lower the capital-gains tax from its current maximum of 20% to 17.5% and continue favorable tax treatment of investments in research and development. Letting his rhetoric soar, Reagan declared, "We can ignite the second stage of our booster rockets and blast this economy to new heights of achievement." As he has since the beginning of his presidency, Reagan depicted himself as an outsider taking on the entrenched forces in Washington. Said he: "The army of lobbyists and special interests is dug in around the Capitol building, firing every weapon in their arsenal in an attempt to shoot down our proposal."

Despite the overheated metaphor, Reagan had a valid point. The lobbyists indeed are at work. Many of them have already had an impact at the Treasury Department and the Reagan White House, helping to modify a purer reform package floated by the department last November. Vice President George Bush, responding to pleas from Texas fat cats who heavily subsidize the Republican Party, implored the President to restore tax breaks for the oil and gas industry. Reagan was persuaded to do so in the name of national energy self- sufficiency. The fact that a number of Republican Senators from energy- producing states faced re-election next year may have also entered into his thinking.

In one tense parley, the chairman of the Senate Finance Committee, Robert Packwood, threatened to kill the reform bill if it taxed employee fringe benefits like health insurance. The result was a compromise solution that would tax only the first few dollars of employee fringes. Congressman Jack Kemp, the leading G.O.P. tax reformer in the House, pleaded with the President to drop the maximum rate below the 35% proposed by the Treasury. Reagan was sympathetic, but decided the loss of revenue would be too high.

The Washington lobbyists have now turned their attention to Capitol Hill. Treasury Secretary James Baker said that he is determined to prevent "a piecemeal picking away or destruction of the proposal." He was the kickoff witness at the House Ways and Means Committee's first hearing on Reagan's tax plan and came away wearing a button inscribed WRITE ROSTY, something Rostenkowski had urged his national television audience to do in support of tax reform. Said Baker: "I'm a little more encouraged. It (a reform bill) is looking more and more likely this year." Most Congress watchers, however, see the likelihood of passage as less than fifty-fifty in 1985, and the chances of passage without significant revisions as near zero.

The White House strategy last week was simply to grab the public's attention. Explained one Administration adviser: "We wanted four to six days of exposure with Reagan reinforcing a simple, straightforward idea: tax reform is pro- fairness, pro-family and pro-growth. Tax reform is Reagan." Reagan will keep making his pitch in coming weeks, but will lay off during the summer and fall, while Congress works its unpredictable way with the plan. By September, at the earliest, crucial committee votes may be at hand, and the President will return to center stage. If he does not like what Congress is doing to his handiwork, he will let the nation know.

The stakes for Reagan, as well as his party, are considerable. In the short term he needs a victory, or at least the prospect of one, to fend off any impression that he is becoming an impotent, lame-duck President. His second term has begun badly, and his Administration seems stalled. The major high- level shuffles last January, particularly the job switch between Chief of Staff Baker and Treasury Secretary Regan, wasted time that could have been spent exploiting Reagan's re-election momentum. Congress handcuffed the President on aid to the contras in Nicaragua, MX missile deployment and his defense buildup. Reagan's visit to a German military cemetery in Bitburg raised a storm of criticism at home and abroad. No breakthrough on arms control is in sight, and a summit meeting with Soviet Leader Mikhail Gorbachev seems to be drifting into limbo. Tax reform, says former Democratic National Chairman Robert Strauss, "is the best thing Ronald Reagan has going."

In political terms, the tax reform drive is seen by Republicans as an opportunity to win over young voters and bring a lasting realignment of the parties. But more than that, the tax plan is Reagan's attempt to put his & indelible stamp on domestic policy. It is the culmination of practically every fight he has carried out in his political career: against high and progressive tax rates, ever expanding governmental powers, limitations on free enterprise, and unfair burdens on the American family. A firm believer in the worth of his own crusades, Ronald Reagan has joined a battle that excites him. It is quite possible that if he wins, the embattled U.S. taxpayer may wind up a victor too.

With reporting by Laurence I. Barrett with Reagan