The Sisyphean task of tax reform should be tried only by someone who will not flinch from igniting some highly flammable people — those who believe that whatever wrinkle in the tax code benefits them is an eternal entitlement. Tax reform’s Senate champion is Ron Wyden, the affable, cerebral and tall Oregon Democrat who once wanted to be the NBA’s greatest Jewish power forward since . . . never mind.
Anyway, a serious Republican reform plan has been produced by Rep. Dave Camp, who is retiring from Congress but will probably be succeeded as chairman of the tax-writing Ways and Means Committee by Paul Ryan, who has a wholesome monomania about promoting economic growth. Conservatives should rejoice that the Senate’s most important chairmanship, that of the Finance Committee, has come to Wyden, whose progressive credentials are impeccable but who says: “We like expanding the winners’ circle.” And who believes that economic growth of 4 percent is not only feasible but urgent.
Furthermore, the Congressional Budget Office might do “dynamic scoring” rather than “static scoring” of tax reform. That is, the CBO would consider probable behavioral changes — by workers, business executives, investors, savers and consumers — when projecting the revenue results of reforms that change incentives. If the reforms were likely to increase economic growth, the CBO would estimate increased government revenues, reducing resistance to tax cuts.
Although Wyden, 64, is in only his third full term, in January he will be the Senate’s seventh-most senior Democrat. If Republicans then control the Senate, Wyden will be the ranking Democrat on Finance, which probably will be chaired by Utah’s Orrin Hatch, who is the most senior Republican and second-most (behind Vermont Democrat Pat Leahy) senior senator. Wyden comes from Portland, the Vatican of progressivism, so Democrats may tolerate him collaborating with Hatch and Ryan — adult supervision for the congressional sandbox — in crafting tax reforms that respond to the CBO’s recent ominous economic outlook for 2014 to 2024.
It projects growth through this year of about 3 percent. This would be “the largest rise in nearly a decade” but would be anemia continued, considering that the unprecedentedly weak recovery from the recession has left median household income 3.3 percent lower than when the recovery began almost five years ago. The CBO says that after 2017, “growth will diminish to a pace that is well below the average seen over the past several decades.” It cites “long-term trends — particularly, slower growth in the labor force” as the population ages.
The CBO also mentions other reasons the growth potential is “much slower than the average since 1950”: “Changes in people’s economic incentives caused by federal tax and spending policies set in current law are expected to keep hours worked and potential output . . . lower than they would be otherwise.”
Growth-igniting tax reform is required to rescue the nation from a “new normal” of appalling underemployment. Wyden, whose state produces wood products, says “housing is a very real economic multiplier — it cannot be outsourced,” so do not expect him to favor substantial curtailment of the deductibility of mortgage interest payments, a $70 billion benefit disproportionately benefiting affluent homeowners. Wyden’s party will insist on preserving the deductibility of state and local taxes, a nearly $80 billion benefit that encourages state and local spending. Unions, especially, will fight for the $260 billion benefit of not taxing as compensation, which it obviously is, employer-provided health insurance. “You never,” says Wyden equably, “get to start from scratch in Washington.”
Of the nation’s embarrassing down-at-the-heels infrastructure — roads, airports, harbors — Wyden says, “You can’t have a big-league quality of life and big-league economic growth with little-league infrastructure.” He has a plan (“Build America Bonds”) for getting “billions of private dollars off the sidelines” and into infrastructure investments.
In addition to minimizing growth-suppressing economic distortions, tax simplification would reform politics by shrinking opportunities for transactions between private factions and the political class. This class confers favors as much with the tax code as with appropriations. “You can drain the swamp,” says Wyden. “They did it in ’86.”
Yes, Congress simplified the code, eliminating preferences to pay for lower rates, but the swamp was unimpressed: Since then, the code has been re-complicated more than 15,000 times. Still, Wyden, ebullient in the face of daunting evidence, will, like Sisyphus, roll the reform boulder up the mountain, challenging the axiom that tax reform cannot be done in an election year or the year before one, which are the only years we have.