A Camp-ground for Tax Reformers

By :: March 4th, 2014

By proposing a far-reaching and detailed rewrite of the Revenue Code, House Ways and Means Committee Chair Dave Camp (R-MI) did something very few elected officials have done in recent years: He stuck out his neck and proposed radical reform. The initial press response has focused on politics and concluded that neither Republicans nor Democrats will be able to take on the special interests, that there is too much partisan gridlock, and that the plan is going nowhere.

But such responses largely ignore the history of successful reforms and forget that some policymakers do care about policy. If the goal is to conquer a mountain, someone has to start by building a common basecamp.

Almost any major systemic reform that does more than give away money creates losers. Someone always has to pay for whatever new use of resources the reform seeks—in this case, tax rate reduction and a leaner code with fewer complications. But politicians hate identifying losers. We voters punish them for their candor, which is why they nearly always increase deficits to achieve their goals and leave it to a future Congress to identify the losers who pay the bill.

With his full-blown tax reform proposal, Chairman Camp decided to lead and proposed repealing many popular tax breaks. There’s a lot I like and some things I don’t like in his proposal, but the simple fact is that a well-designed comprehensive alternative to current law can change the burden of proof. Change a few items, and each interest group argues that it was unfairly picked on. Put forward an alternative that takes on almost all preferences, and each interest then needs to justify why it deserves special treatment not accorded others.

The prospect for any reform is nil if no leaders do what Camp did and step up to the plate. The process is not one of instant epiphany. Rather it slowly builds support. Those who first propose change may increase the odds of success from 5 percent to 10 percent. Others who follow further improve those odds.  If we reject out of hand all ideas that start with less than a 50 percent chance of success, we’d probably never reform anything.

It often takes modest support by others to move the process forward.  In 1985, President Reagan and House Ways & Means Committee chair Dan Rostenkowski started the legislative process that yielded the Tax Reform Act of 1986 by simply agreeing not to criticize each other while the measure went through committee. Like Speaker Boehner today, Speaker O’Neill wasn’t enthusiastic about reform then, but Rostenkowski was able to proceed anyway.

In 1985, Rostenkowski knew he could pass a Democratic bill. But he knew it would go next to the GOP-controlled Senate Finance Committee. Each party would have a turn and a final agreement would come from a bipartisan conference committee. If House GOP leaders let Camp mark-up his bill now, Democrats would have their turn, at least this year, in the Senate. At least so far, both President Obama and senior Ways & Means Democrat Sandy Levin (D-MI)  have avoided any major criticism of Camp’s plan, but one wonders if Democrats aren’t going to forego an opportunity, once again joining Republicans in deciding in advance that nothing substantial can be done, so it won’t.

Leadership is seldom about achieving results that can be predicted with certainly. More often it requires using your clout to change the process or reframe the debate in ways more likely to serve the public. It’s certainly about more than protecting your party’s incumbents in the next election regardless of the policy consequences.

When I served as economic coordinator and original organizer of the 1984 Treasury study that led to the ’86 Act, it was a time when books declared major tax reform the “impossible dream.”  Sound familiar? In the face of that dispiriting commentary, I tried to encourage the Treasury staff with what I call the “hopper theory” of democracy: the more good things you put in the hopper, the more good things are likely to come out. By this reckoning, Chairman Camp has already won.

7Comments

  1. Tax Roundup, 1/5/14: President proposes $1 million Sec. 1031 cap. And: other doomed stuff! « Roth & Company, P.C  ::  10:02 am on March 5th, 2014:

    […] Gene Steurle, A Camp-ground for Tax Reformers (TaxVox). […]

  2. AMT buff  ::  11:38 am on March 5th, 2014:

    I still disagree with the obsession about keeping the advertised tax rates low while hiding all kinds of marginal rate increases through phase-outs and add-on taxes. I support tax reform that brings the true rates out into the open. Non-rich people are already paying 40% rates, so let’s admit that and simplify they system with explicit tax rates that are also the actual rates. Unless the argument is that Pandora’s box of stupid tax tricks can never be re-sealed.

  3. Michael Bindner  ::  3:42 am on March 6th, 2014:

    He may have won, but I don’t expect a Camp Meeting over this. The meeting he really needs is with the Office of Tax Policy at Treasury. If these discussions begin, there is half a chance this thing might work. While I would like something much more comprehensive – something involving consumption taxes and major increases to the child tax cut – I don’t suspect that such things, however desireable, will make it into this year’s discussions. Pity that. Still, if Obama gets a swing at this and includes some new revenue (which he already got in the ATRA), this might be considered a victory upon passage. Of course, it may just be a way for Camp to keep his chair or be a valedictory that he knows will sit on the shelf.

  4. Obama’s 2015 Budget Hits Capitol Hill | Collins Consulting Service  ::  7:03 am on March 6th, 2014:

    […] Camp’s reform plan’s details, including the very latest TPC commentary and research: Gene Steuerle commends Camp for using his “clout to change the process or reframe the debate in ways more likely to […]

  5. Steve Abramson  ::  5:13 pm on March 6th, 2014:

    For sweeping tax reform to be achieved, we must realize that everyone’s deduction is someone else’s loophole. The tax code is riddled with special deductions, and the only true solution is to end all deductions and with them the corrupting practice of lobbying for loopholes. This can be achieved in a manner that is pro-economic growth, pro-wage growth, and pro-progressivity.

    A recent working paper from National Bureau of Economic Research (Lawrence Kotlikoff, et.al.) projects that ending the Corporate Income Tax would both grow the economy and wages. http://www.nber.org/data-appendix/w19757/CorporateTaxPaper.pdf There would still be a shortfall in federal revenues that could be made up by a consumption tax, preferably a Value Added Tax, which would work to reduce a competitive disadvantage in trade. The CIT, itself, has lost its ability to perform as an efficient revenue source. Federal revenues from the CIT have fallen dramatically due to the use of legal loopholes including the parking of profits overseas by multi-nationals. The CIT accounted for one-third of total revenues in 1952, but barely produces 8% now.

    The Personal Income Tax could be made most simple and more progressive by establishing a high threshold around the median of $51,000, eliminating all deductions, and establishing a higher rate for incomes above $500,000. The lowest quintile could be further aided via the EITC. For more details, see: http://vatinfo.org/wp-content/uploads/2012/09/SMART-Tax-Illustration.pdf

  6. Obama’s 2015 Budget Hits Capitol Hill  ::  2:03 am on March 7th, 2014:

    […] chair Dave Camp’s reform plan’s details, including the very latest TPC commentary and research: Gene Steuerle commends Camp for using his “clout to change the process or reframe the debate in ways more likely to […]

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