Since 1960, Congress has enacted 66 major tax laws. At more than one major law per year, that makes for a pretty good clip – and a lot of uncertainty.
But it's still a conservative measure of changes to the tax system. If we include the numerous laws that modify taxes in more incidental fashion, we end up with a much bigger number: 387 pieces of tax-related legislation since 1979, according to the Tax Analysts Federal Research Library.
There's not a lot of certainty. But it is cause for a lot of handwringing, most recently by Kevin Hassett of the American Enterprise Institute. “If our citizens believe that tax and spending policies are unpredictable, then they will act as if the world is more uncertain, and be wary of making purchases and investments that they might otherwise make,” he told lawmakers in recent congressional testimony.
Hassett is right: Uncertainty matters. But how much? And what can we do about it?
The answer to both questions is probably not much.
To some degree, uncertainty is a part of life. “We don’t know if it will rain tomorrow, or if a drought might begin that would cause severe harm to crops,” Hassett notes. “A car manufacturer might wake up one day and find that Tesla has invented something new that fundamentally affects the demand for internal combustion engines.”
This sort of uncertainty can be a drag on economic activity, but it’s also unavoidable. Other kinds of uncertainty, however, are more susceptible to intervention, including the uncertainty that flows from politics.
All political activity, including elections, fosters uncertainty. But some political environments are worse than others. As Hassett notes:
If one party is sure to have power, then there is not much uncertainty. Its desired rate will likely prevail. But if the odds of either party controlling the government move towards a true 50-50, then we can say that uncertainty has increased relative to a world the odds were, say, 70-30. Second, if the beliefs of the two parties concerning the best tax rate grow farther apart, with one party favoring much lower rates, while another favors much higher rates, then the widening of the spread between things that might happen is another form of increased uncertainty.
That’s a pretty fair description of modern-day American politics. So what does Hassett suggest? Something entirely reasonable and probably ineffectual. “If the Senate, in particular, could move more toward a policy consensus based on science and evidence, then markets would worry less that policy would change course on a dime at each presidential election.”
Now, wouldn’t that be nice. In fact, even a calm, collegial, and altogether more rational Senate would probably curb uncertainty only modestly. If you doubt me, consider a little history.
Long, long ago, before the rise of Barack Obama, the Tea Party, and our hyperpartisan political culture, critics were already complaining about political uncertainty generally and tax uncertainty in particular.
In 1863, for instance, Commissioner of Internal Revenue Joseph J. Lewis made an impassioned plea for stability.
For while taxation must always be a disturbing power among the laws [that] govern the distribution of wealth, affecting that distribution unequally, yet this evil is of small magnitude compared with that which results from great or frequent changes in the subjects and severity of taxation. A fickle policy in this department of government tends powerfully to unsettle every kind of business, making its profits irregular and uncertain, and so to encourage a ruinous passion for sudden and uncompensated gains, instead of the desire of legitimate accumulation by productive industry.
In other words, politicians were already tinkering with the tax system in ways both large and small. Nearly eight decades later, Secretary of War Henry L. Stimson made a similar, if more particular plea, warning lawmakers that tax uncertainty was hampering the nation’s rearmament in the run-up to World War II.
The lesson in all this history? That change is a constant. Or as Supreme Court Justice Oliver Wendell Holmes Jr. put it, "certainty is illusion, and repose is not the nature of man." (Holmes was good at the whole pithy, pearls of wisdom thing.)
American taxpayers have been operating in a deeply uncertain environment for more than a century. If they haven’t already, they should get used to it, because that environment is unlikely to change – even if the Senate gets a grip on science, evidence, and reality.
This post is drawn from a longer article, "Tax Uncertainty Is Certain, So Stop Complaining About It,' originally published in Tax Notes magazine and now available through the Tax History Project at Tax Analysts.