Recently my colleagues Marty Sullivan, Jeremy Scott and Joe Thorndike wrote long blog posts on tax reform. Marty expanded the menu of possibilities, Jeremy wondered if we are asking the right questions about spending, and Joe discussed the optimists’ view. I have a more direct approach to income tax reform: Stop talking about it.
In August 1950 freshman Sen. Hubert Humphrey took to the floor to discuss what he saw as the shortcomings of the Revenue Act of 1950. He criticized new or continuing incentives and suggested, as President Reagan would in the 1980s, that fewer loopholes and lower rates would be the better approach. We have come to accept as a given this broad-base, low-rate paradigm for tax reform. We have not, however, accepted the hard work of broadening the tax base.
If we take Humphrey’s speech as marking the birth of income tax reform, then we can see that it had a good career in its 20s and 30s with the tax reform acts of 1975, 1976, and 1986. After that, reform continued to work but with less vigor through the late 1980s and into the 1990s. Once it turned 50, however, its career was eclipsed by tax cuts made popular during the George W. Bush presidency. Since President Obama came into office, conservatives and the businesses community seem to have moved tax cuts into old reform’s office without changing the nameplate on the door.
In recent weeks, the challenge of putting income tax reform back to work has been made clear again. House Republicans have reached for the crutch of dynamic scoring in the hopes that it will allow them to avoid the most painful parts of reform. Congress maintained its focus on business tax reform and a desire to dramatically reduce tax rates. Obama put forth an individual tax reform proposal that would address income and wealth inequality, but has no chance of acceptance by Republicans. The stalemate continues.
If Congress and the administration cannot get income tax reform to be productive by the August recess, when it turns 65 — and they won’t — we should retire the concept. With income tax reform out of the way, we could focus the conversation on the important issue – the size and scope of government. If eventually we can agree on how much tax we need to collect, we can always ask tax reform to come out of retirement for a little consulting.