Tax Analysts Blog

Making Tax Reform a Partisan Issue

Posted on Feb 3, 2014

Everyone wants tax reform. Both the right and the left have complaints about the tax code, some the same and some different. The tax system is unfair, complicated, burdensome, and out of step with the rest of the world, according to the common refrain. The problem is that tax reform means different things to different people, and that actual support of specific proposals is very weak. That’s why Republicans are making a serious mistake if they’re thinking of tying tax reform to the debt ceiling debate.

By now everyone knows that President Obama won’t negotiate over the debt ceiling. The White House and Senate Majority Leader Harry Reid have been saying that for two years. Apparently the public should just ignore the fact that Democrats have negotiated over every debt ceiling increase since 2010. But this time, the administration and Democrats really mean it.

Republicans, of course, want to negotiate over every debt ceiling increase. They want conditions. They have some reason for optimism, given that they control the house and that the original sequestration cuts were part of a debt ceiling deal. The problem is that the GOP overplayed its hand in the fall, trying to kill Obamacare in exchange for a budget deal and debt ceiling increase. Democrats refused, the government shut down, and the Republicans came out looking foolish (although they were spared the worst consequences of their actions by the failure of the healthcare website and Obama’s reneging on his promise to allow people to keep their existing plans). Chastised by the debacle and looking ahead to midterm elections, Republicans have already agreed to a bipartisan spending bill that does nothing to stop the implementation of healthcare reform and even rolls back some sequester cuts.

Republicans have been sending mixed signals on what will happen this time around. The country might hit its debt limit by February 7 (or we might have another month; it’s hard to pin Treasury Secretary Jacob Lew down on the issue). For part of last week, most major news outlets were reporting that the House had given up on getting anything in exchange for a borrowing increase. However, over the weekend the GOP seemed to be digging in its heels as Tea Party conservatives said they wouldn’t support a clean bill.

It isn’t quite clear what Republicans will try for this time around, but one idea that was bandied around at their annual retreat (and was talked about in the fall as well) is tying tax reform to a debt ceiling bill. There is some appeal to the idea because tax reform as a concept has bipartisan support. It would also force Congress to move on tax reform and reinvigorate momentum that has flagged because of Senate Finance Committee Chair Max Baucus’s impending departure. However, House Ways and Means Chair Dave Camp, probably the only person in Congress who is truly committed to getting tax reform done this year, is fairly lukewarm about it.

And it isn’t hard to see why. Linking tax reform to the debt ceiling risks making it a partisan issue. Forcing Congress to take up reform is a GOP victory, because it causes Democrats to give up on a clean bill. So Democrats, many of whom are sympathetic to the tax reform process, will have to oppose tax changes because Republicans have politicized the debate, defining tax reform as a win for their side.

Turning tax reform into a partisan issue would be a disaster. Overhauling the tax code involves too many winners and losers across the political spectrum for one party to do it alone. Republicans will need Democratic support in order to pass a revenue-neutral package that eliminates tax expenditures or shifts the tax burden in even small ways. The debt ceiling debate is already partisan. Healthcare reform is also a hyperpartisan discussion. If anyone truly wants tax reform to be successful, it needs to steer clear of any association with either of these Washington crises.

Read Comments (2)

AMT buffFeb 4, 2014

"Everyone wants tax reform."

I see no evidence of that. Many people benefit from the current system. In
fact, most people who care about taxes have arranged their financial lives to
utilize popular tax breaks.

"the GOP overplayed its hand in the fall, trying to kill Obamacare"

Actually they tried to get a 1-year delay in the individual mandate, a result
which now appears highly likely to be "enacted" by executive order later this
year.

"If anyone truly wants tax reform to be successful, it needs to steer clear of
any association with either of these Washington crises."

I disagree. A crisis, real or manufactured, is necessary to force the parties
to compromise on any major issue. No crisis, no action.

That said, the party that owns tax reform owns political cement overshoes.

john leeFeb 10, 2014

I agree your some points. Our personal tax reform may be simplified by the new
LG tax system, which has the 10 benefits such as reducing the existing 7 tax
brackets to 4 (43% reduction) and eliminating existing complex Tax Table and
Tax Rate Schedules. You may spent few minutes to check the following web and
paper.
www.rigeltechcorp.com/2013_tax_rates

Robert Kao and John Lee, The U.S. Personal Income Tax Reform: Linear and
Gradual Tax Simplifications, Academy of Economics and Finance Journal, 2013(4)
47-55

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