Tax Analysts Blog

It’s Time to Give Up on Tax Reform

Posted on Oct 29, 2013

Everyone likes to believe in tax reform – if only because everyone likes to hate on the existing tax system. But tax reform is hopeless in our current political environment, and it’s time to throw in the towel. At least for now.

According to the optimists, Congress is dead-dog serious about tax reform this year. “We may have lost a couple weeks from the government stalemate, but tax reform is back on track,” wrote two pro-reform lobbyists recently.

Congressional leaders are also talking a big game. “This year, 2013,” insisted House Ways and Means Committee Chair Dave Camp, R-Mich., when asked about tax reform last week. “I know what the plan is.”

That would be Camp’s own plan, which calls for the release of draft legislation before the year is out. Camp developed this timetable with Senate Finance Committee Chair Max Baucus, D-Mont, and the two have been banging the drum for tax reform all year long.

From the start, there have been skeptics, of course, but also plenty of cheerleaders. And some of the latter are still counseling against despair. “Tax reform is a perennial interest in Washington,” observed Mark Bloomfield, president of the American Council for Capital Formation, in a recent opinion piece for Barron’s. “It rises from the ashes whenever the time is right, and no real expert should ever declare it dead.”

Maybe I’m not a real expert, but I’m ready to write the obituary.

Bloomfield’s case for optimism is appealing, and he makes interesting comparisons to the Reagan-era drive for tax reform that eventually produced landmark legislation in 1986. Naysayers declared that effort dead any number of times. And they were wrong.

But today is not 1986. Among other things, we lack White House leadership on behalf of tax reform. Camp and Baucus may be doing their part, and it’s not crazy to cast them in the roles of Dan Rostenkowski and Bob Packwood, respectively. But when it comes to tax reform, President Obama is no Ronald Reagan. Obama has given plenty of lip-service to tax reform, but little real effort.

And who can blame him? If presidential leadership involves choosing your battles, then Obama is right to take a pass. Tax reform will not happen. At least not soon.

Tax reform in 1986 was a bipartisan venture animated by a shared definition that also encapsulated a political compromise. “The fundamental idea of lowering rates by eliminating unjustified deductions and exemptions is politically powerful,” Bloomfield insists. And he’s right.

Or at least he was right about 1986. Republicans in that era wanted lower rates, and they were willing to tolerate base broadening to get them. Democrats, on the other hand, wanted to close loopholes, and they were willing to accept lower rates in exchange.

That bargain seems unlikely to fly in 2013. Democrats look at the accretion of loopholes over the last 25 years and see a betrayal of the 1986 bargain. Republicans look at today’s higher rates and see a similar breach of faith.

Both parties still want what they wanted in 1986. But both parties are less inclined to compromise. After all, compromise requires trust – a rare commodity on Capitol Hill these days.

Consider the sad state of tax reform discussions in the House. Early on, Camp included Ways and Means Democrats in his planning for reform legislation. More recently, however, that sort of consultation has disappeared. At this point, most observers expect any plan emerging from Ways and Means to pass with only GOP support.

Such a plan would be notable, if only because it was championed by the Ways and Means chair. But it would not be a meaningful step toward tax reform.

When Republicans promised to defund Obamacare despite controlling only one house of Congress, people laughed at them. But it’s only slightly less crazy to talk about tax reform when you can’t win bipartisan support on the Ways and Means Committee.

Tax reform? Don’t bet on it. Not this year, and probably not next year either. Tax reform, like everything else in Washington, is on hold pending the resolution of a broader, highly polarized debate about the role of government in American society.

As long as that debate remains at a fever pitch, I think we should expect exactly zero progress on tax reform.

Read Comments (1)

edmund dantesOct 29, 2013

The 1986 tax reform was but an extension of the Kemp-Roth reforms articulated
during the Carter Administration. Step 1 of implementation was ERTA 1981,
which laid the foundation for remarkable economic recovery during the Reagan
Presidency. Tax reform is not a short term process. We can hope that
Camp-Baucus will provide the same push that Kemp-Roth did a generation ago.

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