Nixon goes to China. Reagan embraces tax reform.
The "turnabout" is one of the most durable and effective political gambits. With a quick U-turn, the president has at once taken on his most loyal corporate supporters and caught his liberal opponents flat-footed. His State of the Union address should be a masterwork of populist Democratic rhetoric: "We must tax those large corporations and wealthy moguls who have not paid their fair share -- and reward working families who have been caught in the squeeze for so long." It's a very compelling campaign.
Count me in.
But only if the president will back his speech with the same political force he put behind his tax and budget cuts four years ago. That's the great unknown as we begin the 99th Congress.
Tax reform is a noble, if not novel, crusade. For the last 20 years, "reform" has played leap-frog with other tax slogans, such as "capital formation," "industrial policy," "job creation" and "energy independence." Each year brings a new cause which quickly eclipses the last. No sooner have we begun the task of encouraging the poor to work than we are asked to boost charitable giving, or hasten the rehabilitation of our inner cities, or promote single- family home ownership -- or reduce the deficit. Then, as the cycle comes round, we are asked to undo much of these hard-fought issues in the name of "reform."
The Treasury reform proposal is both broad and aggressive, containing initiatives that for years have gathered dust in the bottom drawers of liberal tax experts: do away with the capital gains preference, scrap the investment tax credit, increase taxes on fringe benefits, restrict the use of the foreign tax credit, eliminate mortgage deductions on vacation homes. All that from an administration that four years ago spread more butter and jam on the tax code for business and the wealthy than we have seen in decades.
The Treasury should be applauded for its proposal. In some cases the plan is too complicated to administer -- never mind explain -- to common folk. In others, it begs fights that can't be won. (Scholars are far bolder than politicians.) But on the whole, the proposal adopts the right approach, broadening the tax base and reducing rates, and it deserves intensive review.
Some conditions must be met, however, before the campaign for tax reform moves very far. The first, and most critical, is forceful, visible and personal support from the president. It isn't enough to recite tax reform's litany in the State of the Union address. Thumping reform around the country, jawboning special interest groups and maintaining constant contact with Congress must immediately follow.
One measure of the president's commitment will be his willingness to back off his own revenue-losing proposals, including enterprise zones and tuition tax credits, that both compound our deficit dilemma and violate the very spirit of tax reform. Another test will be his ability to withstand the pressure exerted by hefty Reagan supporters to exempt them or their enterprises from the sweep of reform. Any backsliding will greatly compromise his campaign on the Hill -- and stir the old question of "fairness."
The second condition demands that the president follow the traditional legislative path. The changes contained in the Treasury proposal are as profound as they are dramatic. Unraveling 30 years of tax law, if it's done well, can't be done overnight. (The 1954 overhaul took three years.) Recalculating the goals of the Internal Revnue Code, sorting out what incentives still work from those that don't (or are patently excessive) and trying to balance the economic consequences make for a delicate and lengthy ordeal.
That means passing through each gate on the legislative slalom -- from the first day of hearings all the way to the Rose Garden. It cannot be done through shortcuts, like Blair House commissions or the old "Gang of 17." It cannot be the work of one party or one house. A reform package of this magnitude -- with such high political and economic stakes -- has got to be built with great care, and by many hands, if it is to endure.
The third condition is that tax reform must not divert us from the overwhelming obligation of deficit reduction. Even with presidential leadership, mounting yet another tax crusade will not be easy in these days of general economic good news. For the moment, there is little pressure for deficit reduction beyond the odd editorial writer or Wall Street pessimist. Crisis, which increasingly propels government to make nasty choices, remains all but invisible. The horror stories of the last economic cycle have long since faded.
The reality, however, is that $200 billion deficits, like so many helium balloons, must one day collapse. What better way -- and what better time -- for the second Reagan administration to define its economic vision than to willingly negotiate a balanced deficit reduction package with Congress? As the president asked in his recent Inaugural Address: "If not us, who? If not now, when?"
The alternative, of course, is to wait for crisis to rush us to belated judgment.
Congress, and particularly the Democratic Party, has good reason to be apprehensive about the second Reagan term. We are at once gun-shy and weary after four years of combat; we know how facile he is at dodging blame; we appreciate his ability to lift the country above its economic concerns, like the deficit. Nor do we ignore the magnitude of his popularity.
Most Democrats are ready to press ahead on some very difficult issues, including deficit reduction and tax reform. As an opening gesture of my commitment to both in this Congress, I will offer James Baker the earliest opportunity to bring the administration proposal to the Hill. In the meantime, it would bolster the nation's economic stability, if not lobby fees, to temper tax speculation and wait for Secretary Baker's report.
If, in the months ahead, the president's commitment to tax reform proves more than a populist fling, he will not only have pulled off a political "turnabout" of some proportion, but may also have accomplished much more on the economic front in his second term than cynics now predict.