Not Dead Yet
Posted on February 26, 2013
Originally published in The Hill.
I would put the chances of comprehensive tax reform at 50-50.
I know that sounds wildly optimistic, given the raw partisanship that currently infects Washington, but the more I think about it, the more it becomes clear that tax reform is the only solution to our budget problems.
Here are six reasons why tax reformers have more than a fighting chance to be successful in this Congress:1. Reform brings in revenue. If pro-growth reform is done correctly, it can spur increased economic activity, create more jobs, get more people off welfare and bring a trillion dollars into America from overseas. The trick is to make certain that whatever loopholes you close don’t kill jobs at the same time. That’s why policymakers have to be very careful that their reforms don’t kill critical industries like housing. But almost every economist believes that a simpler, smarter tax code will be good for economic growth and, eventually, very good for increased revenues.
2. Reform is good politics. The president has turned his attention away from attacking the rich and toward attacking tax loopholes. The White House doesn’t make strategic decisions like that unless it has plenty of polling data to back it up. And polls show that the American people want a tax code that is simpler, flatter and less likely to give special breaks to tax avoiders.
3. Reform is good for Max Baucus. The Senate Finance chairman faces a tough election in red-state Montana. Nothing would help him fend off a challenge better than an accomplishment like tax reform. Moving on tax reform will undoubtedly help him to raise campaign cash, but it will also give him an opportunity to take care of home state concerns.
4. Reform is important to Dave Camp. The House Ways and Means Committee chairman is a smart policy wonk who has made tax reform his version of the Holy Grail. Camp, who recently overcame a serious health scare, has renewed his focus on the dysfunctional tax code and his plans to fix it. Under his leadership, his committee has held countless hearings on things like the charitable tax breaks, tax extenders and other aspects of the tax code, all with an eye toward reform. Camp wants this, and despite some misgivings from the GOP leadership, he is moving full-speed ahead.
5. Reform will burnish the Obama legacy. When Ronald Reagan signed into law tax reform in 1986, he solidified his reputation as a transformational president. President Obama, who carefully studied Reagan before taking office, is worried about his legacy, like all second-term presidents. Fundamentally reforming the tax code would be quite a feather in his cap.
6. Reform is the missing piece of the puzzle. The only way to a grand bargain is through tax reform. Only tax reform brings in the revenue needed to satisfy the president. Only tax reform lowers tax rates enough for Republicans to be satisfied that it is the right policy. Only tax reform satisfies liberals who want big business to pay more and conservatives who want small businesses to pay less. And only through tax reform can Republicans and the president come to the table on entitlement reforms.
A friend of mine who works on tax issues for a living said that cooking tax reform is kind of like cooking barbeque. You can have hot, medium or mild reform — hot being fundamental, comprehensive reform with rate simplification and base broadening, medium being focused solely on corporate tax reform and mild being focused solely on tax simplification.
In my view, only tax reform with all of the hot sauce will create the spark needed to get this economy going again. But the hotter the sauce, the deeper the indigestion for some in Washington.
At the end of the day, that indigestion might prove to be unsustainable for policymakers, and they might choose instead to limp along from fiscal crisis to fiscal crisis.
That’s why I rate tax reform at best as a 50-50 proposition. It’s not dead, but it’s not a sure thing, either.