Author! Author! Congressman Richard A. Gephardt

Representative Richard A. Gephardt (Democrat, Missouri) is the co-author, with Senator Bill Bradley (Democrat, New Jersey), of the Bradley-Gephardt Fair Tax plan, which was the precursor to last year's tax-reform law. Gephardt, 45, is in his sixth term in the House and is campaigning for the Democratic nomination for President in 1988. He is a member of the tax-writing Ways and Means Committee and was a member of the House-Senate Conference Committee, which wrote the final version of the tax-reform act that Congress passed last September. This interview was conducted for Playboy by nationally syndicated columnist Donald Lambro at the beginning of 1987.

[Q] Playboy: As co-author of the tax-reform bill, what do you tell your friends who take you aside and ask, "Is this new law going to help me or hurt me?"

[A] Gephardt: I tell them it helps everyone, that it really does make the system fairer. I argue that it helps economic growth, which is good for everybody. Clearly, there are some people in every income category whom it hurts, but there are others in every income category whom it helps. It tends to hurt more people in the upper-income categories--above $60,000 or $70,000--because more of those people were highly sheltered. You have more losers per capita in those groups than you do in the lower groups. But there are more winners in the lowest-and middle-income groups--$50,000 and below--than in any other groups.

[Q] Playboy: Then what do you say to the middle and upper-middle earners who get hit the hardest?

[A] Gephardt: It depends. My feeling is that over 20 years, we created a bunch of tax-break junkies. People began to worry more about avoiding taxes than about making money. That's the great benefit of this new law. If these people were absolutely intent on avoiding taxes and were working every shelter known to man, then maybe it would increase their taxes. But the great attraction now is knowing that the top rate is 28 percent, that you don't have to do gymnastics to get the tax rate from 40 percent to, say, 28 percent.

[Q] Playboy: When people buttonhole you, what are they most concerned about?

[A] Gephardt: Individual Retirement Accounts, because a lot of people have them. Also questions about interest and the deduction of interest. Those two areas are unsettling. People also ask, "What's the form going to look like? Will it be more complicated?" Another question is "Are you going to change it?" All these stories have circulated that we're going to change the code, go back to where we were and raise taxes.

[Q] Playboy: Just so people can gnash their teeth, tell us what they should have done before the end of the year.

[A] Gephardt: A heck of a lot of ads told people to buy cars [because of the phase-out of sales-tax deductions] or sell certain kinds of stocks to avoid the change in the capital-gains rate. [There are now limitations on capital-gains exclusion.] When friends asked, my advice on what and whether or not to buy was "It really depends on your situation." I'm not a tax consultant, but I tried to warn them that they shouldn't be sucked into a deal by somebody who might make money out of it, unless they had really analyzed the facts. If you can't afford a new car, a $500 deduction for the sales tax doesn't make much sense.

[Q] Playboy: Why did you water down the tax benefits for IRAs? With the savings rate in the U.S. as low as it is, why would Congress eliminate such a successful incentive?

[A] Gephardt: First of all, I wanted to keep [full deductibility for] IRAs. That was our position in the House, and I'm sorry that they were taken out. But whatever the decision, the evidence of economists is that IRAs don't increase the savings pool in this country; they simply substitute the way the saving takes place. In other words, they didn't cause people to save more of their net income; they caused them to put it into IRAs rather than something else. I was still for them, though. I think there's a strong social good in getting money into long-term capital that can be used for retirement.

[Q] Playboy: Are there any big surprises in the new tax law that we might not have seen?

[A] Gephardt: The average middle American isn't going to be in for a big surprise. Some tax shelters in the real-estate area, especially those with passive losses, were taken away retroactively, and I sympathize with the criticism of people affected by that.

[Q] Playboy: People expected that the deals they'd already gone into would be grandfathered--in other words, exempted.

[A] Gephardt: Yes. There is some grand-fathering and there is some transition, but probably not as much as there should be. A lot of us fought in the conference to make a more generous transition.

[Q] Playboy: What about the effects of tax reform on the economy? There are some, such as this month's Playboy Interview subject, Louis Rukeyser, who think it's bad for the country.

[A] Gephardt: I disagree. People say that this new law is going to disrupt economic growth and that it's going to slow things down. I don't believe that. I've seen the differing econometric models, and you can find a model that will say anything you want it to say. Other factors are a lot more critical: The Federal deficit, the interest rates, the exchange rate, the trade issue and consumer confidence are all more important factors for long-term economic growth.

[A] I've never bought the argument that the panacea for all of our problems lies in changing the tax code. One of our goals in tax reform is to have a more level playing field, to get all of these tax decisions out of economic decision making--to the extent they've been in it--and to let money and capital flow to ventures that are designed to make money, to create wealth and to create jobs.

[Q] Playboy: Still, polls show that a majority of Americans are cynical about the tax-reform law. They expect to pay more taxes and fear that reform will make the tax code even more complicated than it was before.

[A] Gephardt: I reject both of those views. I understand the cynicism, because the taxpayer has seen us change the law about every other year, and usually it does get more complex and less fair. But I say, let's give this a try. The fact of the matter is that even though there is no net change in revenues, we put heavier taxes on corporations in order to lower taxes on individuals. For most people, it's more likely that their taxes will go down rather than up.

[A] As to the second point--complications--yes, there's change, so there will be complications. But 15 percent more taxpayers will be filling out their tax returns on the short form. The number will go from 70 percent of individuals to 85 percent. And that's a considerable simplification for that 15 percent of all taxpayers.

[Q] Playboy: What about the argument that some of the reforms are bad for entrepreneurs, that people who have incorporated themselves will suffer, because the new law cancels their tax breaks?

[A] Gephardt: I suppose they could now unincorporate and go to a subchapter S and get back into the other mode. I always felt it was unfortunate that we had different corporate and individual top rates. That's what changed when we wrote Bradley-Gephardt--the corporate rate and the top individual rate were the same. And that was the main reason we did that. Unfortunately, when the bill came out, we had a higher top corporate rate than individual rate. So now the people who incorporated in order to get the lower rate probably want to unincorporate. I'm sorry about the paper blizzard that's going to ensue, but that's the way it happened.

[Q] Playboy: If you could go back and change one or more provisions in this tax-reform law, what would you change?

[A] Gephardt: Besides retroactivity and the IRAs? My hope is that we'll leave it alone. We need to let people get used to the change and be able to control their lives and their businesses. That's what we didn't have in this country--stability or predictability in the income-tax law. I think it will be a real benefit now to have some tax rest.