House passage of the tax reform bill is the major legislative achievement of the year, the more so because of the bill's uncanny politics. Unlike most of the other megabills before Congress in the last days of the session, this was elective; it did not have to be passed. Nor were the usual pressures on its side. On the one hand was mostly a concept; on the other were most of the interest groups that have traditionally prevailed on tax matters in the past -- not an even contest.
The purposes of the bill were also clouded as it went through drafts. The Democrats were unenthusiastic when the president proposed it; they viewed his version as a cover for cutting the tax rates of the rich. He and the Republicans were then opposed when the Democrats rewrote it. They said the Democrats had snuffed out too many incentives to save and invest.
But these are traditional quarrels. What finally happened is that this president put tax reform at the top of the national agenda, reform meaning the trade-off -- so long discussed and little acted on -- of fewer preferences for lower rates. The chairman of the Ways and Means Committee, Dan Rostenkowski, then alternately shoved and shrewdly steered the reform idea to the point of passage in the House; in the process he made converts of a lot of doubters, including on occasion us. The president then put down a rebellion among the House Republicans and produced the votes to pass the bill. Not bad for a lame-duck president and a Democratic pol.
And at some point the history ceases to matter; this is a good bill. It would take millions of poor people off the income tax rolls, shift some of the burden back from individuals to corporations, set up credible minimum taxes for both individuals and corporations for the first time, force payments from some industries that in the past have not paid their fair share, simplify the code a little and the rate structure a lot, and reaffirm the principle of progressivity in U.S. taxation. Its major weakness is that it would have an uncertain effect on a few heavy industries, most of them hurting now.
The bill now goes to the Senate. The Finance Committee must take it up under enormous political pressure (22 Republican Senate seats and control of the Senate are at stake next November); enormous fiscal pressure (the deficit will be threatening to go over $200 billion again); pressure from the interest groups that lost in the House -- and pressure from the president. To extract the bill from the House the president promised Republicans to veto any final bill that failed to meet certain "minimum requirements." Rates at various income levels would have to be cut even more than in the House bill, the personal exemption would have to be put at $2,000 for more taxpayers in the middle-income range (to make the bill "pro-family") and "basic tax incentives for American industries" would have to be preserved (although it was the president who proposed repealing the investment tax credit, the most direct of these).
All three of these "minimum requirements" would cost money. How he would offset the cost -- or recommend that the Senate offset it -- the president didn't say. Some in the Senate have talked of a value-added or national sales tax as a way of taking the pain out of both income tax reform and deficit reduction next year. But sales taxes are regressive.
That, however, is next year's problem. Tax reform this year has been a good job.