A TAXING SITUATION

By Richard Lacayo

When it comes to jumping aboard somebody else's bandwagon, nobody compares with Bill Clinton. Having already neutralized Republican attempts to make budget balancing and welfare reform into their signature triumphs, last week he plunked down among them on the IRS, an issue they had hoped to make their own in the '98 congressional elections. To do that required him to undercut his own Treasury Secretary. Robert Rubin insisted he would never accept an IRS reform bill so long as it imposed on the agency an oversight board from the private sector. Rubin went on insisting right up to the day last week when he more or less said, "Oops! Never mind."

Rubin's self-cancellation was part of the complicated game over Kerrey-Portman, a bill that developed out of the bipartisan commission on IRS reform headed by Senate Democrat Bob Kerrey of Nebraska and House Republican Rob Portman of Ohio. More than once over the past year the White House has rushed forward with reform proposals to pre-empt the commission, which issued its report in June. All the same, by mid October, when the House Ways and Means Committee was wrapping up consideration of the bill, the proposal for an outside board of directors was still a red flag for Rubin, who saw it as an open invitation for board members to interfere with tax cases in which they just might have an interest. Rubin had felt strongly enough about the board that the President told him personally he would not sign a bill that created one.

Then came Monday, when the White House learned that House minority leader Dick Gephardt was planning to support the bill. That would open the way for nervous Democrats to get behind it in droves, maybe even enough to give it a veto-proof majority. It also threatened to leave Al Gore stranded as apologist for the taxman in the next Democratic presidential primaries, which potential rivals like Gephardt and Kerrey would be happy to see. That was enough for Clinton. On Tuesday he went public with his turnaround. On Wednesday the bill rumbled out of Ways and Means with a vote of 33 to 4.

The White House says it switched largely because House Ways and Means Committee chairman Bill Archer agreed to drop a provision that would have allowed the outside panel to hire or dismiss the IRS commissioner, a power that now rests with the President. But that's a compromise Archer offered two weeks ago. A better explanation is the charged atmosphere that followed recent Senate hearings at which IRS victims told their horror stories. "At a certain point," says a senior Administration official, "the avalanche is going to happen, and you have a choice: stand in the hut and get crushed or get outside in the most elegant manner possible."

For the individual taxpayer, Kerrey-Portman is a mixed bag. One of its more controversial parts would shift the burden of proof in civil tax court cases from the citizen to the IRS. But of the 120 million individual and corporate returns filed each year, no more than 30,000 end up in tax court. Because settlements are reached in most of those cases, just 1,500 go to trial. At the earlier stages of a dispute, including the audits faced annually by 2 million filers, citizens would still be required to produce records to refute IRS claims. And the change would apply only to individual taxpayers, not companies. All the same, critics are worried that in a system based on voluntary compliance, just the prospect of less aggressive enforcement will tempt more people to fudge. And if taxpayers were not required to produce their records in court, the IRS might resort to more intrusive methods of fact gathering--for instance, squeezing information from brokers, clients and ex-spouses. Digging through your own checkbook ledgers would be a pleasure by comparison.

As for the oversight board, its real powers, and its potential for conflict of interest, won't be clear until it's up and running. As one more way to position himself on the side of reform last week, Clinton chose a new commissioner, reaching outside the customary field of tax lawyers and accountants for Charles O. Rossotti, 56, chairman of American Management Systems, a computer-consulting company. His experience will come in handy heading a mismanaged agency with an antique computer system.

Even with the White House signed on, Kerrey-Portman could run into trouble again in the Senate. House Speaker Newt Gingrich is already unhappy that Archer compromised enough to bring Clinton in on the deal. In the Senate, where the bill will be taken up early next year, Finance Committee chairman William Roth might not be in any hurry to make the deal final if that drags the issue deeper into the '98 campaign season. And all this is just a skirmish in a larger battle plan by some conservatives to sweep away the graduated income tax altogether. Even as he introduced the Kerrey-Portman bill, Archer, who supports a national sales tax, said it was just a holding measure "until the great day comes when we can abolish the income tax completely." A White House flip-flop on that one would be something to see.

--Reported by James Carney and Bruce van Voorst/Washington

With reporting by JAMES CARNEY AND BRUCE VAN VOORST/WASHINGTON