Is Tax Reform Like the Horizon?

Since the inauguration there has been a steady drumbeat that tax reform was going to happen quickly but like the horizon it recedes as we approach it.  The Treasury Secretary promised that tax reform would take place by August but just two days ago admitted that date was unlikely.  The more action is delayed the more it begins to look like the Administration and Congress face stiff opposition in accomplishing one of the most important actions that would be a positive jolt to the economy.

In 1986, the Reagan tax reform was not easy for a popular president.  It took two years to achieve and during that period of time the process moved in fits and starts.  The President, his advisors and members of Congress would do well to read the history of the Reagan accomplishment:  Showdown at Gucci Gulch by Jeffrey Birnbaum and Alan Murray.

The longer a tax reform initiative is delayed the harder it will be to accomplish since democrats will see delay as a means to regain control of the House next year.  What could be better than running against a do-nothing Congress and an unpopular president?

Comprehensive tax reform will bring out special interests who will like reform as long as they can protect their favored provisions. And, that may be enough to stall the process this year.  So, what is the alternative?

How about doing tax reform in stages with each stage being able to garner bi-partisan support while minimizing special interest opposition.

Today’s New York Times contained an opinion piece by Steve Forbes, Arthur Laffer, Larry Kudlow, and Stephan Moore that made a very sensible suggestion that could get the reform ball rolling.  It proposed three actions: reduce the corporate tax rate from the world’s highest at 35% to 15%; immediate expensing of capital purchases; set a low rate on repatriating the $2 trillion that is held offshore.  To help win democrat support, the writers suggest using the money from the repatriation tax for infrastructure investment—roads, bridges, the electric grid, broad band access, and airports.  That means union jobs a favorite of democrats.

To really generate strong support, there is one additional action that would please most taxpayers while only alienating accountants and accounting firms.  That action would be to follow the precedent of Japan and the Netherlands and let the IRS prepare “pre-filled forms”.  Since the IRS already collects all of our financial information through wage statements and 1099s, it could send tax payers a pre-prepared form that they could check, sign, and submit.  That is how it is done in Japan and the Netherlands.  And, in Japan the tax form is a post card.

If the architects of comprehensive tax reform are serious about getting something done this year, they would do well to adopt of the philosophy of the icon Vince Lombardi—do a few things but do them very well.  Streamlining the tax code represents the battle of interests and like the 1986 will not happen quickly.

Author: billo38@icloud.com

Founder and president of Solutions Consulting which focuses on public policy issues, strategic planning, and strategic communications.

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