Wherefore Art Thou, Tax Reform?

Bill Bradley has an interesting, if not entirely realistic op-ed in the New York Times this week which seeks to address the virtues of bipartisan spirit in Congress. He does so by drawing parallels between the current health care debate and the landmark tax reform passed in the 80’s by Reagan and a divided Congress. It’s an admirable, if somewhat pie in the sky, nostalgic view.

In 1986, before President Ronald Reagan, a Republican Senate and a Democratic House succeeded in passing landmark tax reform, Washington insiders and the press predicted — as they are doing now — that it would never happen. There are lessons from the 1986 legislative experience that can be applied to health care reform today.

In the end, the tax bill passed because each party got something it wanted: Republicans got a lower marginal tax rate, and Democrats eliminated special-interest loopholes. By adhering to the principles of equity (equal incomes should pay equal taxes) and efficiency (the market is a more efficient allocator of capital than Congress), the bipartisan coalition produced a bill that lowered the top tax rate from 50 percent to 28 percent, eliminated $30 billion annually in loopholes and resulted in the wealthy contributing a higher percentage of income-tax revenues than they had before the reform.

I leave it to you to read the piece and see if the theory has any merit, but it does bring us a stark reminder of election seasons past. What ever happened to comprehensive, sweeping tax reform? When the various candidates for the GOP nomination got up on stage lasts summer, one would have thought that our tax code was the biggest problem facing America (which it very well may be in some ways) and that there were more options for total reform than crows sitting on all the fences of Macom County.

One wanted a flat tax. Another called for a fair tax. Some wanted to do away with the IRS entirely and institute a national consumption tax. Value Added Tax became common terminology for pundits everywhere. Only one thing was certain… our current tax code was a disaster, and something had to be done.

The Democrats were a bit more quiet on the subject, but many of them also admitted that the time for change had come. (In their defense, getting Democrats to talk about the “T word” at all is a bit of a feat, since it raises some sore memories.) But at least they were mulling it over.

Then the economy collapsed. The election ended and Barack Obama was sworn into office. TARP was the battlefield, followed by stimulus questions and then health care. What happened to tax reform? It was the 21st century Lindbergh Baby of American politics.

As we’ve pointed out here before, tax reform is now like the weather. Everyone talks about it (at least when they want something) but nobody seriously wants to do anything about it. Because no matter what you do to improve the efficiency or fairness of the system, you’ll be draining somebody’s rice bowl. And the somebodies in question are very often the deep pockets you’ll need to win your next election.

Tax reform? What tax reform? It’s now just dust in the wind.