Tax reform as currently defined by the president and Congress is a trade-off: lower rates for fewer preferences. Fiscal considerations -- the president is opposed to a tax increase, the deficit rules out a cut -- have locked the two halves of the process together. To do a lot of rate cutting, you need to do a fair amount of preference cutting as well. The bill taking shape in the Ways and Means Committee would do less and less of both. Increasingly it looks like an empty reshuffling of present law whose only purpose is political.
The tax bill has been useful to the president as a distraction from the deficits his leadership has produced, and he is happy to be identified with lower rates. He has not been able to gin up appreciable public or congressional support for the plan. Even so he has thrown the Democrats on the defensive. Their overriding concern on this issue has been to produce a bill -- any bill -- so that they cannot be jumped next year as the party that blocked "reform." It has become the task of Ways and Means Chairman Dan Rostenkowski to pick up for some semblance of the president's plan the votes that the president himself has not been able to generate.
These votes have been costly. Mr. Rostenkowski has had to yield to members of both parties on his committee who are determined to save certain preferences. The more preferences he agrees to preserve, the less revenue he has available to give up in rate cuts. The classic example so far is the deduction for state and local taxes. The president proposed repealing it. High-tax states, which include many of the most populous -- meaning those with the most votes in the House -- instantly resisted. Mr. Rostenkowski may now be about to give up on repeal in return for votes. But that will cost an estimated $65 billion over the next five years in the revenues that were to be applied to reducing rates.
The bill has also lost in sharpness, and in what might be called integrity, in the trading that Mr. Rostenkowski has been obliged to do. For instance, one set of proposals was to reduce the generous tax preferences now enjoyed by timber producers. At the behest of Ways and Means member Beryl Anthony Jr. (D-Ark.), whose family has timber interests, this was altered so that the preferences of only large producers would be affected.
Instead of simplification, one supposed goal of reform, a new distinction would be introduced into the code. Similar concessions were made in other areas -- for example, a proposal to limit future use of tax-exempt state and local government bonds for nongovernmental purposes.
If Ways and Means stays on this path it will not produce reform as currently defined, but its shell.