Dave Camp's tax reform plan is dead. We know that because everyone says so. And for once, everyone is right.
But the death of Camp-style tax reform may be the best thing to happen to tax policy in a long time. A couple of weeks ago, my colleague Marty Sullivan explained some of the reasons why the Camp plan is still valuable, despite its hopeless legislative prospects. Among other things, Marty noted, Camp put the lie to any number of simplistic, slogan-based tax schemes:
- it has burst the bubble of all the feel-good tax reformers who have been wasting our time promoting unrealistic tax plans. The Camp plan is the ultimate reality check on tax reform. It is far more complicated and painful than marketers of tax reform have told the public to expect. It is unlikely that any realistic tax reform would be any shorter or sweeter than the Camp draft.
The Armey flat tax, the Linder FairTax, the Cain 999 plan, the Bowles-Simpson zero plan, etc., are all pie-in-the-sky proposals that serve the political purposes of their promoters and little else. They bear no resemblance to what a tax reform with all the features necessary to pass the U.S. Congress would look like. Now, instead of feeding the public a dream of some mythical ideal tax system that doesn't exist, Congress will roll up its sleeves and begin working on realistic, incremental reforms to our system.
But I also think it's possible that the death of the Camp plan may advance the ball for other, still ambitious tax reform proposals. In particular, I think we might see more talk about a value added tax.
The VAT, of course, has been left for dead by most serious observers, including the ones currently trying to bury the Camp plan. But Camp's failure has demonstrated that tax reform in the tradition of 1986 is hopeless. (And yes, I think the Camp plan bears a reasonable family resemblance to the 1986 reform, in the sense that it works primarily with the tax tools already at hand; it leaves the system improved by still recognizable.)
It's true that the VAT is politically impossible. But it's no more impossible than a Camp-style reform. Which leads me to think, somewhat paradoxically, that all this "impossibility" may open the door to a VAT discussion.
In particular, I would not be surprised to see an uptick of interest in Michael Graetz's tax plan to combine a much narrowed income tax with a broad-based consumption tax. The Graetz plan would fundamentally revamp the income tax as it's existed for the past half century or more. Indeed, it would return the levy to its historical origins as a rich man's burden. And it would pay for that change with yet another historical throwback: the return of consumption taxes to a place of prominence they haven't seen since the early 20th century.
But the Graetz plan would do all this, according to the Tax Policy Center, without losing money or substantially shifting the tax burden among income groups. In other words, it's a grand plan but still a real one -- which distinguishes it from the grandiose, unreal plans that capture popular attention every now and then.
I'm no fanboy for the Graetz plan; it has its own issues. And it would be a heavy political lift, to say the least.
But when and if lawmakers decide that tax reform is actually a necessity -- as opposed to a campaign slogan -- then Graetz's plan may be the most plausible of all the "impossible" alternatives.