Irs Reform: The Gop Fumbles Its Dream Issue

It was supposed to be the Republicans' best photo op of the '98 election year: On Apr. 15, beaming lawmakers would crowd around President Clinton in the Rose Garden to watch him sign a GOP-backed bill that clamps down on abuses by a runaway Internal Revenue Service.

So much for that Kodak moment. The GOP's popular drive to overhaul the IRS has run afoul of intraparty squabbling. Now, Republicans aren't just going to miss their symbolic tax-day deadline--they're in danger of blowing the issue altogether. "Every day we wait increases the likelihood that we won't pass anything and taxpayers will lose," grumbles Senator Bob Kerrey (D-Neb.), co-chair of the panel that first called for IRS reform.

The hang-up is in the Senate. Finance Committee Chairman William V. Roth Jr. (R-Del.) was supposed to deliver a bill by Mar. 30. But he doesn't want the Senate to act until he stages another round of hearings in late April. The new sessions, likely to focus on IRS tactics in criminal cases, aren't needed to boost the overhaul measure, which passed the House by 426-4. But Roth, who bristles at House bids to claim credit for his issue, wants to remind Beltway players that it was his hearings on IRS excesses last fall that blew away White House opposition to reform.

RUNNING UP A TAB. During the delay, senators are piling on new protections that are driving up the bill's cost. Senator Christopher S. Bond (R-Mo.) wants to cut into the $7.5 billion the IRS collects in penalties each year. He's pushing to eliminate "substantial underpayment" and "failure to pay" levies. Roth's costliest idea would halt IRS efforts to collect taxes from spouses who innocently sign a fraudulent joint return. The Senate bill's 10-year tab comes to $20 billion--more than triple the House measure's cost. Under budget rules, lawmakers must offset lost revenue with cuts or tax hikes.

Some conservative Republicans want to make sure taxes don't go up. Taxpayers shouldn't have to pay for protection from the IRS, these lawmakers say. They want the costs to come out of already approved spending, not tax hikes or even obscure loophole-closers. Roth says he has found ways to offset his bill's cost, but won't disclose them.

Roth's personal touches on the bill also will slow things down. His proposals, unveiled on Mar. 24, would undo a House deal that won Clinton's grudging acceptance. Roth would boot the Treasury Secretary off a new IRS governing board, while boosting the panel's powers over tax-law enforcement. Other senators want to make the IRS even more independent: They would turn the part-time board into a permanent bureaucracy that would replace the Treasury as the agency's overseer. That's sure to draw a veto recommendation from Treasury Secretary Robert E. Rubin.

The Senate's target now is to vote on an IRS bill in May. But that's the height of the budget season. Reformers fear their bill will turn into a vehicle for GOP tax-cutters, who could add on amendments that would trap it in an internal fight over how best to use a projected surplus.

All the skirmishing adds up to election-year trouble for the antitax party. Republicans want to replace the income tax but can't agree on a plan. The GOP's other big tax issue--repealing the tax code by 2001, even if there's no replacement ready--has laid an egg in polls.

That leaves only one tax idea Republicans can agree on: They all hate the tax collector. But if the party lets IRS restructuring founder, GOP candidates could go home this fall with nothing to say when taxpayers ask: "What have you done for us lately?"

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