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Why Tax Reform Won’t Happen Soon

2 Comments 02 April 2012

Tax reform and the rich from the book The Benefit and the BurdenWhile most people believe we need it, no one wants to sacrifice for it. Since 2012 is an election year–and there appears to be no winning side of the tax issue–tax reform probably won’t happen until 2013 or 2014, says Bruce Bartlett, author of The Benefit and The Burden: Tax Reform—Why We Need It and What It Will Take.

What is so far lacking in the tax reform effort is a compelling reason to enact any actual reforms, as opposed to cutting taxes again or just extending the Bush tax cuts for another year or two. Unfortunately political tactics are also a barrier to a deal. With 2012 being a presidential election year, both parties would like to be on the winning side of the tax issue. But what is the winning side?

In principle, everyone favors tax reform—as long as it doesn’t take away a person’s own favorite deduction or credit or raise his or her taxes in any way. In principle, everyone favors tax simplification, base broadening, and lower rates. And in principle, everyone favors reducing the deficit, and a solid majority even support increasing taxes—as long as it’s not their own taxes. Action before the election is unlikely because both parties will want to campaign on tax reform, hoping that the election results will strengthen their hand.

That means 2012 will probably be a year like 1984, when tax reform was a topic of discussion, and important progress was made in narrowing the issues and finding common ground. But legislative action probably won’t happen until 2013 or 2014. Remember, it took two full years for final congressional action on the Tax Reform Act of 1986 after the Treasury had already done a thorough analysis and put forward a detailed proposal.

Citizens can help move the process forward by becoming educated about the nature of the tax system and forcing their elected representatives to give them detailed responses that go beyond opposition to any and all tax increases and support for any and all tax cuts. Tax reform involves trade-offs. Those who aren’t willing to commit to any trade-off except in a vague, general way don’t deserve to be taken seriously.

It might be that economic and political circumstances need to change to make meaningful tax reform possible. Tax reform efforts in the 1960s and 1970s were driven by revulsion for rich people who gamed the system and didn’t pay their fair share. Such revulsion is not evident at this time. Even Democrats are fearful of being accused of class warfare and often have their hands out for campaign contributions from the nation’s wealthy.

In the 1980s tax reform was driven by a willingness of Republicans to accept that the deficit prevented further tax cuts. This understanding imposed a hard revenue-neutrality requirement on the tax reform process that forced them to accept genuine reforms—higher taxes—in return for lower rates. It does not appear that Republicans have reached that point this time around. They still believe that the deficit problem can be dealt with on the spending side. To the extent that they are willing to even talk about higher revenues, it is only by way of some Laffer Curve miracle that will result from slashing tax rates. I see no evidence of a serious willingness to consider revenue offsets or challenge the no-tax-increase-ever orthodoxy imposed by Grover Norquist, the Tea Party, and the Club for Growth.

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