Now’s time for U.S. to fix ‘rotting carcass’ tax code

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. 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 tax-writing Finance Committee, 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 Ryan’s office — Ryan, 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.

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. No Democrat, says 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.

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-over-year, 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.

Wyden says he is puzzled by neither the cause (persistent slow 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 doubling the earned income tax credit. He seems, however, to be pre-emptively, but not prematurely, disappointed about a legislative process that will fall somewhat short of fixing “all of ” what ails the rotting carcass.