Will We See A Fully Monty On Tax Reform?
Published in Forbes
Remember “The Full Monty?” Six unemployed steelworkers plan a stage show that one-ups their Chippendale rivals. They do the Full Monty – that is, strip all the way.
Will we go all the way on tax reform this year? Probably not. But, pundits and pessimists to the contrary, an important step forward for tax reform, I predict, will take place in 2013.
First the pessimist’s view: Today’s impasse on tax reform is insurmountable. Many Democrats define “reform” as tax increases on the wealthy and corporations. Republicans are unified on revenue neutral tax reform: closing loopholes to pay for low tax rates for individuals and businesses.
Now, consider several encouraging signs.
First, President Obama and the GOP Congressional Leadership have a long track record of not seeing eye to eye on anything, but Senator Max Baucus (D-MT) and Congressman Dave Camp (R-MI), the chairmen of the Senate and House tax-writing committees, are resolute in making reform happen this year. They are working hand-in-hand, politically and legislatively. Hearings have already commenced and working groups have started the sausage-making process in earnest. They have the power and moxie to get the imprimatur of the Senate Finance and House Ways and Means Committees on tax reform this year.
Second, fractured Republicans looking to reunite and rejuvenate could see tax reform as an opportunity to get back on a positive agenda, and economic policy is a good place to start. Speaker Boehner recently surprised many by bestowing the prestigious title of “House HR 1,” first bill honors and stating: “Fixing our tax code is one of my highest legislative priorities for this Congress.”
Third, Democrats see tax reform as a way to bring more revenue to federal coffers, mitigate spending cuts, and eliminate some of the signature special interest breaks for political and public policy reasons.
Fourth, President Obama’s “charm offensive” may just be window dressing, but his attempts at bipartisanship are being met with cautious optimism among Republicans. It could spill over into tax reform. What could be the bipartisan breakthrough? It depends on the meaning of the word “revenue”: higher taxes rates, or closing “loopholes” or revenue from economic growth from tax reform.
What can we learn from the history of tax reform? The Tax Reform Act of 1986, the last big rewrite of our tax code, came about because of five reasons which are equally relevant today: one, supportive public opinion (our tax code is broken, unfair, incomprehensible and hurts the economy); two, committed and powerful tax reformers (in Congress and including the President); bipartisanship (the President, Democratic and Republican leaders and tax writers); a desire for legacy among policymakers (the President and in Congress); and finally, the “stars being lined up just right.” (In ’86 tax reform was resurrected from the dead on more than one occasion.) These five elements made tax reform a reality in 1986. All but the last are now present and the stars could yet be aligned.
Will tax reform proceed beyond the Congressional tax writing committee (full Monty rather than only a Chippendale) and become law?
It could, as part of a “grand fiscal bargain” which has eluded us so far, but for political and economic reasons remains on the agenda. We will get a grand bargain and tax reform signed into law in one of two ways: The first is through political leadership beginning with the President and then the Congress. Note for the first time in many years both the Senate and House have passed a budget, all the while struggling to resolve their differences. The second trigger would be through a “market event.” A sudden drop in financial markets for any number of reasons would be a 2008 déjà vu: the financial markets collapsed and the President, Chairman of the Federal Reserve and Secretary of the Treasury told Congressional leaders if they didn’t act, we would be in the most serious financial and economic situation since the Great Depression. A new market event in 2013 could trigger a grand bargain and tax reform, as an integral component.
Full Monty or Chippendale tax reform in 2013? At a minimum, Congress for the first time in three decades will produce fundamental rewrites of our tax code: The House Ways and Means and Senate Finance Committees will offer two visions of tax reform. But who knows, we could go all the way – in 2013 or maybe 2014 with tax reform signed into law and a reality.
Mark Bloomfield is president and CEO of the American Council for Capital Formation, a nonprofit, nonpartisan organization dedicated to public policies supportive of saving and investment to promote long-term economic growth, job creation and competitiveness. Bloomfield also served on President-Elect Reagan’s Transition Task Force on Tax Policy.Download Here