Don’t confuse mere tax cuts with true tax reform

Health care failed. So now we’re told it’s time to move on to tax reform. The Treasury secretary has said that health care was hard, but tax reform will be easy. Press Secretary Sean Spicer recently said they’ll have a couple of months to pull tax reform together.

Not surprisingly, experienced Washington politicians such as Sen. Mitch McConnell are not so optimistic about the timetable for tax reform.

After the Trump electoral victory, we were told that tax reform would be a certainty. With a Republican president, Republican House and Republican Senate, why not expect 2017 tax reform?

There are a few questions that I’d like to address today. First, what do we mean by tax reform? Are tax cuts tax reform? And what if we don’t pass tax reform this year, or next, or the year after?

Let’s work backwards and start with the consequence of not passing tax reform.

If tax reform is not adopted, the complexities, inequities and distortions of the present system will increase and continue to hinder our nation’s progress. Moreover, taxpayer morale will continue to deteriorate and the so-called tax gap will grow.

So there you have it — the consequences of not passing tax reform. Let me now confess that those words are not mine. They come from a report issued by the Treasury Department in November 1984. This report is known in tax circles as “Treasury I.”

Treasury I was a report issued to President Ronald Reagan in response to a request made in the January 1984 State of the Union Address. It was praised by many tax policy experts for its far-reaching and comprehensive approach to tax reform.

It was also dead on arrival as a framework for a legislative document. Treasury I itself said “those who benefit from the current tax preferences ... will complain loudly.” They did.

Tax reform creates winners and losers. Despite the fanciful remarks of often-unknowing politicians, there is no tax reform that creates nothing but winners. And history tells us losers complain loudly.

It is possible to silence the loud complainers and the lobbyists who scream for them. But it takes time. And it takes groundwork to win the political war. And it will be a war.

In contrast, tax cuts can be done with minimal complaining. Tax cuts for all, or almost all, can gain support and can be passed, perhaps even quickly. But tax cuts are not tax reform.

We are also told that the failure of health care means that tax reform will be more difficult. This, again, confuses tax cuts with tax reform.

The argument goes like this: The Ryan health care bill cut taxes by about $600 billion. If that bill had passed, then later tax legislation would have fewer taxes to cut, making it easier to pass a tax bill without reconciliation.

The linkage between health care legislation and tax legislation works only when the goal of both is to cut taxes. So failure of the health care bill will make tax cuts more difficult.

But tax reform, true tax reform, could pass on its merits apart from health care legislation.

But tax reform is difficult. And it takes time. The Treasury I report was later replaced by Treasury II late in 1985 and it eventually led to the 1986 Tax Reform Act, passed in October 1986.

Many articles and other news reports state that the last time

tax reform was done was in 1986. This is true. There have been many tax cuts since then, but they were not tax reform.

Let’s remember this. And let’s use the right words in describing what may happen in 2017 or 2018. Tax reform will take years and it will require apolitical tax policy studies and it will require bipartisanship or no partisanship.

The 1986 legislation was a compromise of many people who took leadership roles. This included Republican President Reagan, Republican Senate Finance Chairman Bob Packwood, Democratic Sen. Bill Bradley and Democratic Chairman of the House Ways and Means Committee Dan Rostenkowski.

I don’t see any signs in the air suggesting tax reform can happen, even in the next two years. I can see tax cuts happening. But please don’t call what we get tax reform.