It’s Gen Z’s turn for tax reform

The last time Congress enacted fundamental tax reform, in 1986, Tom Cruise was starring in Top Gun and I was leading the Tax Policy Center at the U.S. Chamber of Commerce. More than 30 years later, Cruise is still making blockbusters, I’m still working on tax policy — and potentially historic tax reform is once again grabbing the headlines.

Back then, I was lucky to have a front-row seat for the development of that monumental piece of legislation. And monumental was the word — the bill was the culmination of bi-partisan efforts by legendary policy leaders like Senate Finance Committee Chairman Bob Packwood, R-Ore.; Senators Bill Bradley, D-N.J., and Bob Kasten, R-Wis.; House Ways and Means Committee Chairman Dan Rostenkowski, D-Ill.; Representatives Dick Gephardt, D-Mo., and Jack Kemp, R-N.Y.; and the leadership of President Ronald Reagan.

This was no overnight reform. After years of considering proposals by both parties and two detailed tax reform plans offered by the Reagan administration, the Ways and Means Committee spent 26 days debating and voting on the tax reform bill, and the Senate Finance Committee took 17 days. There were many times when it looked like the job was too difficult to succeed, but skilled political leaders from both sides of the aisle were committed to the result and managed the process to a successful conclusion. The result was not as perfect as some might have hoped, but the overall goal was met: Tax rates were reduced, many loopholes were eliminated, the tax code was made simpler and the result was more economic growth.

While the 1986 reform might have been a once-in-a-generation rewrite of the Internal Revenue Code (it replaced the 1954 code), the reforms did not last a generation. Tax rates went up, new incentives and loopholes were added and, worst of all, other industrialized countries lowered their business tax rates — some more than once — while U.S. corporate tax rates remained static. The result was that business investment was drawn to other countries where the tax burden was much lower, impacting U.S. gross domestic product and the wages of U.S. workers.

This isn’t the first time since 1986 that policymakers in Washington have tried to once again reform the tax code. Over the years, lawmakers on both sides of the aisle offered numerous proposals and a number of commissions were formed to study the issue, but the politics and policy never aligned to accomplish the goal. 

• Reagan’s successor, President George H.W. Bush, had a tax reform plan he hoped to propose if he had won a second term. His Treasury Department published it in December 1992 as he was leaving office.
• In 1993, President Bill Clinton established the Bipartisan Commission on Entitlement and Tax Reform.
• In 1995, House Ways and Means Committee Chairman Bill Archer and House Majority Leader Dick Armey, both Texas Republicans, took part in a series of debates on whether a National Retail Sales Tax or a Flat Tax would be better for the country. 
• Tax cuts proposed by President George W. Bush and enacted in 2001 focused more on cuts for individuals than comprehensive tax reform. In 2005, Bush also put together a bipartisan President’s Advisory Panel on Tax Reform.
• In 2008, Ways and Means Chairman Charles Rangel, D-N.Y., proposed “The Mother of All Tax Bills,” which would have reduced the corporate tax rate from 35 percent to 30.5 percent and broadened the base by eliminating deductions and credits.
• In 2014, Ways and Means Chairman Dave Camp, R-Mich., produced a tax reform proposal that would have gotten the corporate tax rate down to 25 percent.

None of those proposals — all put forth by very serious people — ever got as far as a vote in one of the tax-writing committees.

Politics and policy may finally be aligning for the first time in 30 years.

The current situation is historic because the politics and the policy may finally be aligning for the first time in 30 years, and voting on a tax reform proposal is closer than it has been in decades. As tax counsel at NRF, it’s exciting to once again be in the front row.

Is the proposal that will be unveiled on Wednesday the best plan that has been developed in the past 30 years? Maybe, maybe not. But during all those years of failed attempts at tax reform, our trading partners have continuously cut their corporate tax rates and have been able to steal business and jobs away from the United States because we have the highest rate in the industrialized world. Given that, we cannot afford to let the perfect be the enemy of the good.

As tax reform finally moves forward, we should try to improve it, champion the process and get engaged to encourage its successful outcome. Most of all, we must be very careful not to kill it in the process.