Tax Analysts Blog

Let’s Stop Talking About Tax Reform

Posted on Oct 2, 2014

Rep. John A. Boehner, R-Ohio, thinks tax reform is “in the realm of doable” over the next two years. That sort of upbeat assessment should be encouraging -- especially coming from the speaker of the House.

But it’s hard to take Boehner seriously when his GOP colleagues don’t. “Tax reform’s one of those things where we just don’t know if we can get there at the end of the day," warned House Budget Committee Chair Paul Ryan, R-Wis. As the presumptive replacement for retiring House Ways and Means Committee Chair Dave Camp, R-Mich., Ryan will play a key role in any drive for tax reform. If he thinks it won’t happen, it probably won’t.

Ryan isn’t the only pessimist. In fact, it’s hard to find anyone (outside the speaker’s office) who honestly believes that tax reform is imminent.

The problem isn’t a lack of ideas, but it may be a lack of good ideas. In a recent op-ed, Columbia law professor Michael Graetz gave a nod to the earnest intentions of would-be reformers at both ends of Pennsylvania Avenue. But he then proceeded to throw cold water on plans advanced by both the White House and GOP lawmakers.

Graetz pointed out that neither President Obama’s framework for business tax reform nor Camp’s comprehensive reform bill would do much to stem the wave of corporate inversions. “Congress could pass the Obama Framework or the Camp bill tomorrow, and Burger King would still want the Canadian company Tim Hortons to be its parent, and Pfizer would still be looking to invert with a British or Irish company.” Graetz wrote.

Graetz insists the problem is that neither plan is sufficiently ambitious – neither would fundamentally alter the tax environment facing U.S. corporations. Graetz would prefer something altogether more dramatic: replacement of the corporate income tax with something more realistic, more efficient, and more consistent with economic realities.

While acknowledging that the corporate tax is too popular to eliminate completely, Graetz still hopes that it gets scaled back dramatically. “At a minimum, serious tax reform should shift taxes from corporations to their shareholders and bondholders,” he wrote. After all, corporations are able to shift their income and deductions around the world with relative ease. People, on the other hand, are a lot less mobile.

Ultimately, however, Graetz despairs of the prospects for meaningful tax reform, at least anytime soon. “The truth is that for tax reform to be effective in making the United States the place where businesses want to locate their jobs, their investments and their corporate headquarters, we need a tax reform that is considerably bolder than either Congress or the president is now contemplating,” he wrote. “Unfortunately, this no doubt will require both a different president and a different Congress.”

I suspect Graetz is right, but it’s not just a question of leadership. “The problem with Washington is not that the top politicians in the Democratic and Republican parties don’t have the tools or insight needed to lead,” Danny Vinik wrote recently for The New Republic. “It’s that the incentive structure of politics has naturally led to gridlock.”

Vinik was talking about the legislative process in general, but his observation also applies to tax reform in particular. Currently, the incentive structure of politics is not conducive to major legislation of any sort, let alone the once-in-a-generation phenomenon that is fundamental tax reform.

There are plenty of incentives, of course, to keep talking about tax reform. It’s popular, at least in the abstract.

In fact, tax reform is so popular that it’s embraced by both parties with almost equal fervor. And if you listen to all the talk, you can almost hear a consensus forming. “Everyone” agrees that the tax system is broken, that the middle class needs relief, and that companies need to remain competitive.

But those are just talking points. When talk turns to action -- and even to specific proposals, like the Camp plan -- consensus evaporates. Both parties are riven by internal disagreement over the substance of tax reform. And to the extent that any consensus exists between the parties, it’s built on the convenient ambiguity of phrases like “tax reform.”

Outside wonky policy circles, there is simply no appetite for the real work -- and real pain -- of genuine tax reform. If you have any doubt, just consider the deafening silence that greeted the Camp plan after its release. Earnestly devised, it was studiously ignored by almost everyone in Washington.

If Graetz is right -- if the Camp plan was too timid -- just imagine the reception that a truly ambitious reform would encounter.

My colleague Marty Sullivan still thinks that tax reform is a possibility, albeit a faint one. But he too understands the real obstacle. “Before the tax technicians are ready to work out the details of a major tax reform effort, they need their political bosses to provide guiding principles and a basic framework,” he wrote.

But that’s the problem: The political bosses are not interested in introducing meaningful tax reform. They’re only interested in talking about it, because talk is cheap.

Read Comments (3)

edmund dantesOct 1, 2014

Tax reform needs a precursor such as the Kemp-Roth proposal, something with
dramatic ideas that are easy to understand quickly. The Camp proposal flunked
that test. Given the precursor, we then need a Presidential candidate, of one
party or the other, to make it a central part of his campaign, as Reagan did
with Kemp-Roth. If that candidate wins, the momentum for tax reform becomes
irresistible.

I'm afraid I agree with you that all the talk we've heard so far is largely
pointless.

Martin A. Sullivan's pictureMartin A. SullivanOct 4, 2014

You make a very useful distinction for those trying to understand Washington:
all the incentives are there is talk about reform and none to do it.

Reuben RichardOct 7, 2014

You are pretty much right that we should not think about the tax rforms as we
do not know that wht it will be. Whether they are going to hit us or befit us.
So we should go on with the current scenario and whenevr there is a change i
taxes, we should figure out our conduct.

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