BY: Jack O. Nutter
Tax Reform. Seems so obvious. For what are we waiting?
There is a dire need to overhaul the Federal income tax system. I do not see any disagreement on this notion. The tax code is a mess and littered with a bunch of garbage and ineffective narrow provisions. It is an unwieldy product of an entrenched political system. I do not know how anyone can defend it.
With the installation of Donald Trump flanked by a Congressional Republican majority it would seem the stars are aligned for tax reform. It is an opportunity that does not come along very often and should not be squandered. However, the issues and the politics are very intricate and success is not assured, but it is time to get moving.
The fundamental role of a tax system should be to raise sufficient revenue to fund the legitimate and democratically agreed upon government functions. Unfortunately, that is not the case for our system. It has become about picking winners and losers, rewarding friends and trying to punish enemies. It has become a philosophic opportunity to shape government, society and direct individual conduct. The country can do better.
So, if the system is broken, if there is great support for “reform”, what is the holdup? What is the problem?
Tax reform has been studied for years. I mean real reform. Simplification, Not just simple rate cuts or adding more preferences, but getting the favoritism and distortions out. These are not any real new ideas. It has all been out there for years, studied and re-studied.
Mr. Trump had a sort of campaign plank on taxes and economic policy, which resulted in a one-page summary and outline of a tax proposal released about a month ago. Got to be kidding, right? The House Republicans at least put forth a more detailed plan –the so-called Blueprint but that was a year ago. Chairman Kevin Brady (R-Tax) has been meeting with his colleagues on the Ways and Means Committee and has started to hold some hearings, but really, move on. We have not seen much of any real consideration by their counterparts in the Senate, except to hear what they are against. The Treasury Department is devoting time and effort in trying to flush out a more detailed proposal, but it seems one day they are for this and that, and the next day it changes.
I know in most instances it is better to take your time to get things right. Changes to the tax system will have to survive intense, very intense lobbying pressure. Every deduction, credit, deferral, or special treatment—just fill in the blank- has a champion on the Hill.
The opening to enact tax reform is not all that wide given the complexity of the issue, the political climate and the differing approaches of conservatives and liberals. One side is revenue hungry and the other side loathes new taxes. One side wants to redistribute wealth, punish businesses and upper-income taxpayers and the other side wants to promote growth according to their economic “trickle down” theory.
There is a growing body of thought that all the political discourse occurring makes real tax reform unlikely. Maybe a few tax cuts. That there is not enough time in the legislative schedule and Congress will be distracted by the debt limit, the budget, and the changes in health care. These are mere excuses. This is poppycock. So, Democrats are obstructive, will try to do anything to oppose anything Mr. Trump wants to be done. All true, but the effort can be done and all these other matters can be dealt with. Parish the thought, but maybe the sides can work together?
The time to move is now. Run the proposals up the flagpole. Let’s see whose ox gets gored, and who gets the benefits. Show some leadership. Let’s see how projections pan out, how the deficit is or is not affected, how reform can create a more competitive market.
The country needs a solution against the drag the tax system is imposing. Let’s see if Congress wants to do something or put it off again and again. Washington is polarized and partisan and bitter. It will take real leadership to proceed, but the closer to midterms it goes, the more pure politics will get in the way, and not in a constructive way.
The results or success of tax reform are not certain. They will depend on divided political forces agreeing on an overarching structure, compromising on some details and accepting others. Time to get going. If not now, then when?
Jack. O. Nutter is a partner in the Washington DC firm of Nutter & Harris. Mr. Nutter is former tax counsel to the U.S. Senate Finance Committee.