THE VIRGINIAN-PILOT  
              Copyright (c) 1996, Landmark Communications, Inc.

DATE: Monday, March 11, 1996                 TAG: 9603090022
SECTION: FRONT                    PAGE: A8   EDITION: FINAL 
TYPE: Editorial 
                                             LENGTH: Medium:   51 lines

TAX ISSUE SHOULDN'T BE ALLOWED TO GO FLAT REFORM STILL NEEDED

Federal tax reform could be in trouble because it has become identified with the moribund presidential campaign of Steve ``Flat Tax'' Forbes. Politicians may conclude the rejection of him is also a rejection of tax reform. That would be unfortunate.

At minimum, a way to exempt capital gains from the effects of inflation must be found. Inflation causes the apparent value of financial assets to rise while their buying power remains the same. To tax the illusory gains is unfair.

Estate taxes can force those who inherit family businesses to sell in order to meet the demands of the tax collector. Putting a productive, taxpaying business out of business does the country no good.

Finally, the income tax is every bit as disgraceful as when Jimmy Carter denounced it almost 20 years ago. The complexity of the system is absurd, but a tax doesn't have to be flat to eliminate complexity that comes more from loopholes than brackets.

Unfortunately, the flat tax of Forbes, House Majority Leader Dick Armey and others buys simplicity at the expense of fairness. It would enrich the rich and add new burdens to a beleagured middle class. If Republicans are searching for a winning issue to hand the Democrats, they couldn't do better.

Steve Forbes has gone nowhere on a flat-tax platform. Bob Dole, the presumptive Republican nominee, has noticed. He now says more than one bracket may be needed to prevent the middle class from subsidizing the affluent. His political radar is operating well. Of course, as a legislator, he's been a master manipulator of the tax code.

There are also personalities involved. Dole has never liked Jack Kemp or the supply-side gospel. Dole is suspicious of tax cuts that allegedly will pay for themselves. Though he appointed Kemp to head a tax-reform commission, he may no longer feel obliged to follow its recommendations since Kemp has quixotically jumped aboard the stalled presidential bandwagon of Forbes.

The political crosscurrents are fascinating, but the practical upshot may be the preservation of the status quo. Politicians have a huge vested interest in a tax system that lets them trade loopholes, credits, deductions and other tax favors for campaign contributions.

It's a system in which special-interest groups and politicans win, average taxpayers lose. If voters hope for change, they will have to demand that candidates for Congress and the White House specify their views on tax reform. by CNB