Thursday, June 13, 2013

How Soon Tax Reform?

Earlier this week, Stan Collender wrote a longish piece about the prospects for tax reform. His bottom line? Don't expect anything until 2017.

He makes several points, most of which I agree with. But I'm not sure I agree with the conclusion. In particular, Collender argues, essentially, that tax reform will happen only when Republicans give in to the Democratic position that reform should be revenue-positive this time around, as opposed to the revenue-neutral 1986 effort.

I strongly disagree with that -- as I've argued in the past, I think tax reform is really only plausible when it's revenue-neutral. Why? Because tax reform by its nature is all about overcoming well-organized, generally influential losers by putting together a coalition of marginal winners. That only works if the end product is essentially an overall net winner (because it increases economic efficiency). Use it to raise revenues, and you lose most or all of that. That's one way to look at it; another is that it's not plausible that a revenue-raising bill of any kind will attract very many Republican votes in the foreseeable future, which means that the votes just aren't going to be there.

Because of that, I'd say that the recent reductions in the deficit -- and more importantly, the recent reductions in everyone's focus on the deficit, along with the at least partial demise of "grand bargain" talk -- is extremely good news for tax reform. It still doesn't make it easy, or likely, but I think the only chance for tax reform is to decouple it from deficits and grand bargains. Indeed, that's what happened in the 1980s; tax reform was (as far as I remember) placed on a completely different track from Gramm-Rudman and other deficit-cutting efforts.

The other thing I'd say about tax reform is that it's no surprise that it's rising to the top of the agenda during a second term of a presidency and during divided government. Regardless of what House Republicans are saying right now, tax reform is never at the top of any party's agenda -- for example, Ed Kilgore makes the sensible point that the IRS scandal could revive GOP flat tax mania, making "normal" tax reform that much less possible. A new presidency brings a new agenda, and tax reform is unlikely to be near the top. Especially if there's another round of unified government.

So while I agree with Collender about all the reasons that tax reform is difficult at best over the next three years, I think this is still the real window; if it doesn't happen now, it's likely not to happen for a while.

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