The annual tax filing deadline, which comes next Tuesday, provides a good opportunity for tax reform advocates to decry the current law’s increasing complexity and inequities, and to urge enactment of a simpler, fairer system.
While they differ on the best course, virtually everyone acknowledges it’s time to repeat the mid-1980s exercise that simplified the system and helped spur economic growth.
But the reaction to the recent proposal from the Republican chairman of the House Ways and Means Committee again made clear that today’s partisan political climate is likely to prevent early consideration of tax reform — let alone its passage.
Within a day after Rep. Dave Camp of Michigan outlined the overhaul he’d been working on for three years, any hope of doing something anytime soon wilted. It was buried by criticism from groups unwilling to accept broad-based tax cuts in return for elimination or reduction of some special-interest provisions.
House GOP leaders, who for three years have passed budgets promising sweeping tax reform, backed off. They dismissed Camp’s proposals by noting pointedly that this year’s budget “does not embrace any particular plan.”
Their negative reaction was a clear reminder of how hard it will be to draft something that gains the support of key figures in both parties and the White House. Politics today is a far cry from when President Ronald Reagan joined with the Republican and Democratic congressional leaderships in supporting the 1986 measure.
Even then, it took more than four years from the introduction of the first major reform proposal by two Democrats, Rep. Dick Gephardt of Missouri and Sen. Bill Bradley of New Jersey, to enactment of the Tax Reform Act of 1986.
This time, it may take even longer.
The 1986 bill reduced the number of tax brackets and eliminated many special-interest provisions, while raising capital gains and corporate taxes and providing a modest increase in revenue. Since then, many new deductions and credits have complicated the tax code and exacerbated inequities in which some wealthy taxpayers pay a lower real rate than middle-class Americans.
Camp’s plan would restore three tax rates (15 percent, 25 percent and 35 percent), reduce corporate taxes, place an excise tax on banks, repeal state and local tax deductions, and place an income ceiling on mortgage interest and charitable contribution deductions.
The response wasn’t surprising: Bankers naturally opposed a tax on themselves. Realtors opposed capping the mortgage interest deduction at $500,000. Democrats complained about eliminating the deduction for state and local taxes, which have the most impact in predominantly Democratic Northern states where those rates are high. Republicans backed away, fearful that talk of eliminating popular deductions would give Democrats a potent weapon in this year’s congressional elections.
The reality is that it’s impossible to lower everyone’s rates and retain popular deductions without losing revenue.
Though most Republicans and some Democrats favor a bill that neither gains nor loses revenue, that may not be the best answer. Given long-term deficit projections, any major overhaul ought to produce additional revenue, primarily from the wealthiest taxpayers. Along with modest curbs on future Social Security and Medicare benefits, the revenue hike would narrow long-term deficits beyond what an improving economy could achieve.
Compromise is a dirty word in Washington. Indeed, the only bipartisanship that Camp’s plan produced was both parties’ criticism, though White House spokesman Josh Earnest called the proposal “a positive development.”
Meanwhile, Camp is retiring from Congress, and his probable successor as Ways and Means chairman, Rep. Paul Ryan of Wisconsin, drafted the budget that de-emphasized tax reform.
Realistically, the subject seems off the table until after the next presidential election. And the chances of doing something then might depend on whether the next president makes tax reform a campaign issue, as Reagan did back in 1984.