May 30, 2013

Tax reform may turn out to be the big exception to what I and others have called the “post-policy” Republican Party. Republicans seem to be treating tax reform as a serious policy goal, and to their credit the House Ways and Means Committee appears to be taking it seriously, holding hearings and doing the preliminary work that would have to be done to really develop a viable bill. So far, at least, it’s not all slogans and symbolism.

And yet…there’s no bill yet. And a Congressional Budget Office report released today demonstrates just how hard it’s going to be. The report details the ten biggest tax deductions, credits, and exclusions, all of which are popular, or have influential supporters, or both. So tax reform will require Republicans to make some hard policy choices, targeting popular provisions for elimination — and to compromise with Democrats in the process.

It’s going to be an excellent test of whether Republicans really can do policy after all.

There are basically two parts to this. Individual tax reform is based on the idea that by closing special tax treatments, rates can be lowered and still produce the same revenue — and collectively everyone is better off because money can be devoted to smarter and more productive places than accounting and gaming the system.

And yet in any comprehensive tax reform, there will be winners and losers. As the CBO report demonstrates, big money can be found mainly in tax expenditures which wealthy and upper-middle-class taxpayers won’t surrender easily: deductions for mortgage interest, charitable contributions, and state and local taxes (the very biggest is the tax incentive for employers to offer insurance, something impossible to eliminate for now because any changes to health care will be hopelessly caught up in the war over the Affordable Care Act).

Overall, as Ed Kilgore notes, most of the benefits go to the very richest. Some of them would be big losers in tax reform, even if their rates are dropped. Are Republicans willing to support policy which, we’ll certainly hear, “raises taxes” on some very vocal, wealthy, and influential people, even if it’s revenue-neutral overall?

At the same time, Democrats are not going to go along with any tax reform that makes the system less fair — Democrats aren’t going to surrender such things as the Earned Income Tax Credit and the child tax credit. That means that Republicans are going to have to…wait for it…compromise with Democrats if they really want to pass anything. Real legislators don’t mind doing that. But can anything that’s a real compromise, anything that really gives Democrats some of what they want, still retain the votes of mainstream House conservatives? Or will they be terrified of being labeled RINOs?

Again: Tax reform is it. Republicans really don’t have any other agenda, other than constantly voting to repeal Obamacare. If they can’t pass this one, they truly are fully post-policy.