Contact FreedomWorks

400 North Capitol Street, NW
Suite 765
Washington, DC 20001

  • Toll Free 1.888.564.6273
  • Local 202.783.3870

external_content

    Tax Reform Veterans See Hurdles Ahead

    BY Jonathan Weisman and Jeffery H. Birnbaum
    11/24/2004

    The two primary architects of Congress's last major tax reform say President Bush so far has failed to lay the groundwork for his ambitious tax agenda and will have to invest a vast amount of political capital to succeed in broadly simplifying the tax code.

    Former representative Dan Rostenkowski, an Illinois Democrat, who chaired the House Ways and Means Committee during the battle over the 1986 tax reform act, and former senator Robert Packwood, a Republican from Oregon, who headed the Senate Finance Committee, disagree on the ultimate prospects. Rostenkowski gives tax reform little chance while Packwood is more sanguine.

    But both say the president must quickly get beyond rhetoric and say what he wants to do. President Ronald Reagan, for example, had one driving motivation in pushing an overhaul of the tax code -- lowering income tax rates -- Packwood said. To get that enacted he was willing to embrace other revenue-raising methods demanded by Democrats in Congress.

    Bush, in contrast, has yet to reveal his motivation beyond the vague goal of simplifying the tax code and promoting savings and investment. "He glosses over what he's going to do," Rostenkowski said. A bipartisan tax reform panel and Treasury Secretary John W. Snow will be charged with putting flesh on those bare bones.

    "The president can get much of what he wants," Packwood said, "but he has to use much of this capital he's talked about. He cannot delegate this one, not even to his Treasury secretary. He has to bust some heads here."

    Both Rostenkowski and Packwood left Congress in the 1990s under a cloud, with Rostenkowski under indictment for corruption charges and Packwood immersed in a sex scandal. But they shared a triumph, the 1986 tax reform act, which lowered tax rates, simplified the income tax system and closed a slew of tax loopholes that had been allowing affluent companies and individuals to escape taxation altogether.

    Packwood is now a lobbyist in Washington, and Rostenkowski is a corporate consultant. Now that Bush has signaled he will pursue his campaign pledge to simplify the tax code, the two tarnished ex-lawmakers may be back in demand.

    "I want this kid to be a success," said Rostenkowski, referring to Bush. "I like the president."

    But, Rostenkowski said, Bush has a long way to go. As with Bush's tax reform push, Reagan's was not given much chance of success. However, unlike Bush's, Reagan's emerged in full detail quickly following his 1984 reelection.

    Reagan had dispatched his Treasury Department to devise a tax reform plan early in 1984, a move many dismissed as an election-year stunt. That September, the liberal watchdog group Citizens For Tax Justice released an exhaustive study of corporations -- many of them contractors involved in the Reagan military buildup -- that were paying no taxes. With the public outrage still fresh, Reagan's Treasury Department released a tax reform plan in December that would close loopholes and raise taxes on corporations and the wealthy in exchange for lower income tax rates.

    The Treasury report joined two other reform plans already in wide circulation at the time, a Democratic version by Sen. Bill Bradley (N.J.) and Rep. Richard A. Gephardt (Mo.) and a Republican version by Sen. Robert Kasten (Wis.) and Rep. Jack Kemp (N.Y.). Treasury would release a second, revised plan before much of the legislative work had been done.

    "It wasn't as if we were plowing stunning new ground," Packwood said.

    Bush's second term does appear to be a ripe time for tax reform. Corporate tax revenue, measured against the size of the economy, has fallen to levels not seen since 1983, in part due to the proliferation of new loopholes and offshore tax havens. Citizens for Tax Justice recently released a study on major corporations that have been getting large tax refunds from the Internal Revenue Service.

    But the public outrage evident in 1984 is absent today. "Nobody is proposing to do anything about it," said Robert S. McIntyre, the group's director. "That linkage is key, and it's missing."

    Beyond decades-old proposals for a flat-tax or a national sales tax, little new work exists on tax reform. Bush's Treasury Department did complete a strongly argued internal paper on the need for tax reform in November 2002. But rather than propose an actual plan, the paper cautioned that many existing proposals were politically unworkable. A single flat income tax rate, for example, "would necessarily reduce the tax burden on high-income individuals" or "lead to an increase in the tax burden on lower income taxpayers," the study concluded.

    The paper also warned of potentially negative political consequences for the party pushing reform, concluding: "The transition accompanying any fundamental tax reform may be disruptive and produce windfall winners and losers. . . . The economic benefits of any fundamental tax reform are uncertain."

    With that backdrop, Bush said he will name a bipartisan panel late this year or early in 2005 to draft reform plans by June. Snow would present Bush his proposal by the fall, for a legislative push in 2006.

    Rostenkowski said that schedule is too slow.

    "We're a year away from having a bill introduced," he said. "I don't think the president can waste that much time. You're only good two years into your second term. After that, you're on your way out."

    Another difference between the present and 1986 is Democratic control of the House then, versus Republican control today of the Senate and House along with the presidency. Bush has mandated that any tax reform fully offset tax cuts with loophole closures or other ways to raise revenue, meaning there will have to be winners and losers in the bill, said William G. Gale, a tax economist at the Brookings Institution. With a divided House and White House in 1986, there was an understanding that both sides would have to compromise.

    With Republicans in full control, tax reform may prove to be like President Bill Clinton's health care effort in 1993, when Democrats controlled Congress and the White House, Gale said. The Republicans saw no need to compromise, and the effort collapsed during Democratic squabbling.

    During his first term, Bush shied away from working collaboratively with Congress on complex domestic policies, preferring to either ram proposals through with minimal compromise, as he did with major tax cuts in 2001 and 2003, or let Congress lead him, as he did with last year's Medicare bill.

    © 2004 The Washington Post Company

    by Jonathan Weisman and Jeffery H. Birnbaum on 11/24/04.