Good morning.
For those of you who still think a major tax reform is possible this year, I call your attention to a piece published this weekend by my former co-conspirator Jeffrey Birnbaum, with whom I covered the 1986 tax reform bill and then wrote Showdown at Gucci Gulch (still in print, still worth reading, and available here.)
Birnbaum makes a number of good points, but the key one is this: tax reform is about economic interests, not ideology or political affiliation. The big fights are over things like imposing a new border tax on imports, eliminating deductions for interest payments, eliminating state and local tax deductions, changing capital gains rules – and those are not fights that break along party lines.
To succeed, therefore, the tax reform effort has to do two things. First, it must establish broad and bipartisan public support for the overarching goal of the reform. And then it must create bipartisan coalitions of interests to support the details. Note the use of the word “bipartisan” in both previous sentences. The lesson of 1986 is that you cannot hope to achieve tax reform on a partisan basis. Competition between the parties can help drive the tax reform dynamic, as it did in 1986; but without some ability to work across the aisle, you can’t assemble a majority for reform.
In today’s increasingly hyper-partisan atmosphere, can an effort so dependent on bipartisan coalitions and cooperation have any hope? Well, I would never say never. But if tax reform was improbable in 1986, then it is approaching the inconceivable in 2017.
Nevertheless, the administration is plunging head first into the effort, according to the latest reports.
And as I’ve said here before, even if a sweeping tax reform bill is all-but-impossible, more modest tax changes are within reach. A repatriation deal – cutting the tax rate on corporate earnings locked overseas, even if temporarily, in return for new investment in U.S. jobs and infrastructure – is waiting to be done, and could be a small stepping stone toward restoring some confidence in Washington’s ability to govern.
But as for the big deal – it’s hard to fix our broken tax policy until you first fix our broken politics.