A serious tax-reform plan and its discouraging reception

Steven Pearlstein
Columnist February 28

Let us now praise Rep. Dave Camp, the outgoing Republican chairman of the House Ways and Means Committee, who last week unveiled a comprehensive plan to reform the federal tax code that was at once politically courageous and intellectually consistent — exactly the sort of thing certain to upset the martini carts along K Street.

No sooner had the details been released than the crony capitalists from the energy, real estate and financial services industries were out there criticizing the Michigan Republican for jeopardizing American jobs, American competitiveness and the American dream — every bit of their fulminations self-serving economic nonsense. There was also the predictable whining from the small-business lobby, already heavily favored by the tax code, about how there was nothing new in it for them.

Steven Pearlstein is a business and economics columnist who writes about local, national and international topics. View Archive

More curious was the reaction from elected officials of both parties, whose polite dismissals took the form of praising Camp for having kicked off a much-needed discussion of tax reform and then acknowledging in some fashion that nothing would actually come of it this year, or maybe ever.

“Blah, blah, blah, blah,” the Republican speaker of the House declared when asked about Camp’s proposal, pretty much summing up the collective reaction of leaders in both houses of Congress.

On this, as on most other issues these days, Republicans can’t seem to decide what they think. They have never been able to reconcile the arithmetic contradiction between their fervent desires for reducing taxes and reducing the federal deficit. While many embrace the idea of simplifying a complex and distortional tax code, they are unwilling to risk losing the political and financial support from the special business interests that have bought and paid for all those breaks. And while they are desperate to demonstrate that they can actually accomplish something, the are so blinded by their hatred of President Obama that they have convinced themselves the only way to win seats in the next election is to do nothing for the rest of the year that might distract attention from Obamacare. It’s all rather pathetic.

More curious was the reaction of the Democrats at the White House and on Capitol Hill, which was certainly more respectful but only marginally more encouraging than that of Republican leaders. After all, here was a credible proposal from a Republican that would increase the share of taxes paid by businesses and the wealthy, lower tax rates for almost everyone else, use a big increase in the standard deduction and child credit to get 95 percent of households out of the business of itemizing deductions, close down the most abusive corporate tax dodges, incorporate White House ideas to close loopholes for hedge fund managers and corporate jets and increase spending on transportation infrastructure — all while coming within shouting distance of raising as much revenue as the present tax code. Oh, and did I mention that it would also create jobs, make American companies more competitive, reduce the cost of tax compliance for households and businesses and generally spur economic growth?

There are, of course, some aspects of Camp’s proposal that Democrats find unacceptable. But as a starting point for a negotiation over economic policy, Camp’s 978-page blueprint was light years better than anything that has come out of the Republican caucus since 1996.

There are two possibilities here.

One was that Camp was given a flashing yellow light by Republican leaders to float his proposal in an effort to get out in front on the issue of tax reform and demonstrate that theirs was not simply the “party of no,” without actually having to bring anything to a vote.

The other, more likely, is that a frustrated Camp, having traveled the country last year holding hearings on tax reform with his Senate counterpart and facing the expiration of his chairmanship of the tax-writing committee in December, decided to defy his leadership and his caucus and put his proposal out there.

But whether Camp was a scout carrying a phony peace feeler or a high-level defector, the right response for Democrats would have been to welcome him with open arms and accept his invitation to negotiate a bipartisan agreement now — this year. (You gotta love the idea of bringing David Camp to Camp David!)

Even if no agreement was reached, Democrats would have had the perfect vehicle to raise their chosen issues of income inequality and corporate responsibility in the run-up to the November elections.

And from a purely cynical political viewpoint, creating a high-visibility negotiation with Camp around tax reform would further expose the divisions of the Republican caucus in the House and Senate and put some distance between the Republican Party and portions of the business community — retailers, manufacturers and the big-business Business Roundtable — that has provided the GOP with political and financial support.

Where I see a golden opportunity, however, administration officials and Democratic congressional aides see only political pitfalls in chasing after the chimera of yet another grand bargain that will come to naught because of Republican intransigence.

More to the point, they think it pointless to engage in politically painful discussions about the structure of the tax code, which inevitably involves creating winners and losers, unless it is part of an overall, long-term budget agreement. By agreeing to a “revenue neutral” budget agreement, they argue, Democrats would effectively be giving up on their top priority, which is to increase revenue for vital government services and benefits — revenue that, to their minds, must come from increasing taxes on the rich and on big corporations.

In other words, we can’t resolve anything until we resolve everything — which is precisely the stance taken by Republicans, and precisely the stance that has delivered the political system into its current stalemate, with each side holding firm in the hope of winning control of the White House and Congress and, with it, total victory.

There’s only one flaw in that strategy, which by now is obvious to everyone outside the White House and the cloakrooms of the House and Senate: The American people don’t want either party to achieve total victory. And the more each side insists on achieving total victory, the less likely either is to get it.

Which is why it is so disappointing that neither party has seized on Dave Camp’s tax reform proposal as a way of breaking this Hatfield-and-McCoy political stalemate that is now turning even the politicians off to politics.

As Camp has demonstrated, there is actually rather broad agreement on both the need for tax reform and on the broad outlines of how to achieve it.

Moreover, if a genuinely revenue-neutral tax reform agreement could be reached, it would not, in fact, preclude a subsequent grand bargain over the overall level of taxes and spending. Rather, such an achievement would help restore a measure of political trust between the parties that is now absent in Washington. And it would help clarify the budget debate if voters and politicians would confront the reality that if they want more overall spending, they will have to accept higher taxes to pay for it. No longer would either party be able to rely on some vague promise that “tax reform” would somehow magically deliver a painless solution to our budget dilemma.

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