Fix the carcass
Reform the tax code, but be realistic
Cynics are said to be people who are prematurely disappointed about the future. Such dyspepsia is encouraged by watching Republicans struggle to move on from the dog’s breakfast they have made of health care reform to the mare’s nest of tax reform. Concerning which, House Speaker Paul Ryan, whose preternatural optimism makes Candide seem morose, says: “If we’re going to truly fix our tax code, then we’ve got to fix all of it.”
Trying to fix “all of” immigration in 2013 and health care in 2010 with “comprehensive” legislation left almost everyone irritable. Perhaps the third time is the charm. Sen. Ron Wyden is skeptical about fixing much this year, even given Senate Majority Leader Mitch McConnell’s decision to limit the August recess.
The fourth-most senior Democrat and ranking minority member on the taxwriting Finance Committee, Mr. Wyden, 68, is usually relaxed but now is especially so, for two reasons. He was just elected to a fourth term. And for him and other Finance Committee Democrats, tax reform is, so far, an undemanding spectator sport. This was underscored last weekend when, as he was being driven from one Oregon town hall to another, he read a Wall Street Journal story headlined: “GOP Tax Overhaul’s Fate Rests on ‘Big Six’ Talks.”
Five of the six were in an almost taunting photo provided to the Journal by Mr. Ryan’s office — Mr. Ryan, Mr. McConnell, House Ways and Means Committee Chairman Kevin Brady, Senate Finance Committee Chairman Orrin Hatch and Treasury Secretary Steven Mnuchin. The missing sixth person was National Economic Council Director Gary Cohn. No congressional Democrat is included.
Evidently, Republicans plan to pass tax reform without Democratic votes, under “reconciliation,” which is inherently partisan — 51 votes will suffice — and limits debate to 20 hours. The 1986 reform, the gold standard of bipartisan tax legislation, was on the Senate floor for more than 100 hours spread over 20 days — after seven days of hearings and 16 days of mark-up.
Messrs. Ryan and McConnell say tax reform will be “revenue neutral.” This might require dynamic scoring — calculating that reformed incentives will stimulate economic growth — to project implausible growth rates. Plausibility is, however, optional, as it was in April, when Mr. Mnuchin’s department produced a tax plan that resembled Lincoln’s “soup that was made by boiling the shadow of a pigeon that had starved to death.” The document — “shorter than a drug store receipt,” says Mr. Wyden — was one page long, contained 218 words, eight numbers and a thumping vacuity, the promise to “eliminate tax breaks for special interests.”
Last November, Mr. Mnuchin told CNBC there would be “no absolute tax cut for the upper class,” meaning no net cut after lost deductions. In Mr. Mnuchin’s January confirmation hearing, Mr. Wyden mischievously suggested calling this “the Mnuchin rule,” which enthralled Mr. Mnuchin, who later said: “I feel like I’m now in good company with the Volcker rule and the Buffett rule.”
In a June hearing, however, Mr. Mnuchin told Mr. Wyden: “You made it a rule, I didn’t make it a rule.” It would be entertaining to watch Republicans try to adhere to that rule while fulfilling their promise — from which they began retreating on Tuesday — to repeal the 3.8 percent Obamacare tax on investment income.
No Democrat, says Mr. Wyden, likes the status quo. When he recently described the tax code as “a rotting economic carcass,” his wife asked him to stop scaring the children. The complexity of the code, which is more than 4 million words, is why America has more people employed as tax preparers (1.2 million) than as police and firefighters. If tax compliance were an industry, it would be among the nation’s largest; it devours 6.1 billion hours annually, the equivalent of more than 3 million full-time workers.
Mr. Wyden knows he sounds like “a one-song juke box” when he keeps stressing “wage growth,” but he notes that last week the encouraging number of jobs created in June (222,000) was accompanied by discouraging wage growth (year-overyear, 2.5 percent, barely ahead of inflation). Many economists are puzzled that low unemployment (4.4 percent) is not forcing employers to bid up the price of labor.
Mr. Wyden says he is puzzled by neither the cause (persistent slow GDP growth, limping at around 2 percent) nor the cause of this cause — insufficient money in middle-class paychecks to power an economy where 70 percent of the fuel comes from consumer spending. He favors, for example, doubling the earnedincome tax credit. He seems, however, to be preemptively, but not prematurely, disappointed about a legislative process that will fall somewhat short of fixing “all of” what ails the rotting carcass.