Yearning for bipartisan consensus? Just mention the tax code. That Byzantine, bizarre anachronism seems to disappoint Democrats and Republicans alike.
But can bipartisan rejection lead to bipartisan reform? That’s the goal of an effort by Democrat Max Baucus, who chairs the Senate Finance Committee, and Republican Dave Camp, who chairs the House Ways and Means Committee. They’ll kick off their self-described Tax Reform Tour on Monday by touring two Minnesota-based businesses — 3M in Maplewood and Baldinger Bakery in St. Paul. The global giant and mom-and-pop firm are fundamentally different in size, scope and mission. But both are examples of businesses the two chairmen — and many colleagues, economists and business leaders — believe would benefit from tax reform.
The changes in the global economy since the last tax reform in 1986 have been seismic, but America’s archaic tax code has not been adjusted accordingly. Oh, sure, it’s been added to, but mostly with layers and layers of tax breaks for individual industries. So by now, by most measures, it’s become globally uncompetitive. In fact, the corporate tax rate of 35 percent is well above the 25 percent average of the 34 advanced economies that are part of the Organization for Economic Cooperation and Development. Of course, thanks to tax breaks and loopholes, many firms pay far lower effective rates.
But better aligning the corporate tax rate with developed, as well as developing, countries’ standards would make the U.S. economy more competitive. And it would likely be an incentive for some U.S. companies to repatriate money held in other nations because of tax purposes. That kind of relief for the slow-growth economy should be the top priority for Republicans and Democrats alike.
Rewriting the tax code would be a complex challenge. And Baucus and Camp have a streamlined, but not simple, solution: Scrap the entire code and start with a blank slate.
The Senate Finance Committee has already begun an attempt. Baucus and Sen. Orrin Hatch, R-Utah, asked their Senate colleagues to provide a list of which tax breaks, deductions and credits should remain in the code. In other words, justify what should stay, instead of what should be removed. In principle, this should make the process more politically palatable, since senators would be advocating including, not taking away, aspects of the tax code. Senatorial submissions are due on July 26. Notably, and encouragingly, Hatch and Baucus wrote that “We will give special attention to proposals that are bipartisan.”
Baucus and Hatch gave guidelines to their fellow senators. Among them, tax breaks need to “(1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.”
On the surface, this seems like the kind of smart, strategic process that has proved so elusive on so many other matters of national importance. With more than 15,000 changes since the landmark 1986 reform, it’s smart to start anew. Congressional defenders of the tax code should be few and far between.
Of course, supporting the concept will prove easier than supporting the outcome. All the special provisions are there because they aided an industry and, by extension, an elected official. The devil won’t be in the details — it is the details.
Still, it’s well worth considering this approach if the interests of American citizens are not superseded by corporations, as too often happens in this “Citizens United” era.
Corporate interests will have high-paid, high-powered lobbyists to represent making their cases. Sometimes these interests will intersect with individuals’ interests, but not always. So every effort needs to be made to help maintain, or indeed advance, the tax code’s progressivity.
Camp provided an editorial writer with this reassurance: “We need to look at a tax code that fits with the progressivity we have right now, so I don’t see any major changes in the progressivity in the tax code under reform.”
Reforming the tax code is overdue. Done right, it could have short- and long-term benefits for Americans. And, just maybe, a successful bipartisan, bicameral effort could pave the way for the Beltway to move away from its seemingly permanent partisan paralysis.