Progressive response to the idea of 'tax reform' has gone around the bend, reaching the Pavlovian levels of reflexive opposition formerly reserved for the right. Perhaps there's some committee, some select group of opinion formers, or meetup that's invite-only, but on several levels - it drives me crazy to see any movement reach this point of unthinking, unblinking opposition. It's unhealthy, it's counter-productive, and worst of all - it's not rooted in any manner of sound policy.
As you've probably heard, the latest suggestion of a grand reform effort was one of several proposals to come out of the Administration's "Jobs Council". There were, of course, others -- plenty of which I would agree ought to be opposed. However, it's tax reform -- not the Jobs Council itself, not the other proposals, not the possibility (probably nonexistent in an election year with a split legislature) of any of it happening.
This follows the yawned - if not sometimes hostile - response to grand tax reforms floated in last year's State of the Union.
On a very basic level - I dislike this automated response because its wrapped in the very same cynicism that has been standard gruel the right feeds to anyone watching Fox news on a regular basis... the government is corrupt and inefficient... the government can't get anything right... 'special interests' will still get their way.
I don't think it's progressive apostasy - indeed, I always thought it was a bedrock principle - to say that tax reform is inevitably doomed is bad framing. If it doesn't make George Lakoff cry, it ought to - because it buys into the central frame of conservative opposition to effective governance.
What's more - the discussion too often takes the form of "taxation as a punitive measure", as if rate cuts coupled with code simplification (elimination of deductions, havens, loopholes, et al) are a bad thing simply because they cut topline rates, without any discussion of the impact on effective tax rates. This, too, seems to play right into a common conservative theme -- that liberals are unthinking "tax and spenders", whose overriding concern is "punishing success".
I've never seen the tax code that way - once upon a time, I thought the philosophical underpinning to liberal tax policy was a relatively simple equation: We believe there are programs that important for the common good, that these programs should be paid for, and a system of taxation should exist to fund them.
But frames aside, is it good policy? We don't have any specifics to analyze now any more than we did a year ago, so of course, that's TBD...
Yet - the common theme of such reform efforts is one that generally trades topline rate cuts (or changes) in exchange for the elimination of 'loopholes'.
Under this general construct - you won't find (m)any partisans of any stripe that get particularly excited about it. The most recent grand reform -- the 1986 Tax Reform -- wasn't particularly popular when it was floated, wasn't particularly clamored for by the right or the left, and in fact, took a minor miracle to get passed (Showdown at Gucci Gulch is an excellent compendium of it). In effect - a Democratic House and Senate worked with a Republican administration to pass the most significant piece of tax legislation in most of our lives... and it was a good policy. It was good policy signed by Ronald Reagan, pushed through the house by Dan Rostenkowski, and sponsored by Dick Gephardt in the House/Bill Bradley in the Senate.
Even today - this isn't well understood... In fact, Wikipedia will tell you it was a wholly regressive piece of the tax legislation - by collapsing 15 brackets into four, and actually cutting the topline rate, while raising the lowest bracket rate.
However - herein lies the importance of ignoring the topline rates and instead, focusing on the details...
As the excellent Urban Institute/Brookings Tax Policy Center shows - the actual impact was a progressive rebalancing of the tax burden. Ignore the headlines - focus on the details:
In particular, compare the effective tax rates from 1986 to 1987 (the first year the new, revised code was in effect)...
Despite the topline machinations - the lowest quintile actually saw their effective tax rate drop, as did the second, middle, and fourth on a sliding basis -- while despite the topline cut, it was only the top income quintile that saw a rise in their effective tax rates. If you slide over further - you'll notice that among the top 10%, 5%, and 1% -- the effective rate rise correlated upwards, with the top 1% seeing an effective tax rate rise by almost 7%.
Even beyond this, though -- again, I don't want to 'punish' the high earners; only have them pay their fair share towards the society we all benefit from -- Liberals Should Like Tax Reform.
If we did this in 1986, why do we have to do it again?
Because it's a mistake to think of the tax code as something that is ever "done" -- it's not designed to be done. Rather - the tax code should be thought of as your hedges - you shouldn't expect to trim them once, and never again. Rather - they get a regular pruning, grow unwieldy, and need trimming again.
To some extent - sure - the growth comes from lobbyists getting their goodies, but much more often, these loopholes began as perfectly good ideas... Today's green energy credits are tomorrow's loopholes. We legislate for the here and now, with the expectation that our children will legislate for the new here and now -- when today's fledgling industries have matured, when today's economic boosts become tomorrow's loopholes, etc.
As the excellent Thorndike piece above notes -
Broadly speaking, both liberals and conservatives seem angry that tax reform didn't last. But all lawmaking is ephemeral, especially when it comes to taxes. The dynamics of democracy do not lend themselves to statutory stability.
In effect - this need for broad reform every generation or so (and if you trace the history of the IRC backwards, especially in the post-Depression era -- we're due... we've seen a big rewrite every 25 years or so) is a feature, not a bug.
Tax reform isn't something you necessarily need to do even for the now -- to be sure, reform would return fairness to a system that has most small businesses stuck on the statutory rate of 35%, while the GE's of the world pay 0% -- it's because like any liberal, you'd better believe I'll find new programs I think ought to be funded. They might be healthcare related... they might be housing credits... they might colonization of space... But - to fund them, we need a reliable and solid tax base.
For liberals, the reinvigoration of the tax base was crucial. Not only did it protect the existing flow of revenue, but it made future tax increases more effective. Economist Joseph Pechman underscored that point in 1989 when lawmakers were struggling to close a widening budget deficit. Given the new, broader base that emerged from the 1986 reform, Pechman predicted that even modest rate increases would produce considerable revenue. His prediction was borne out by the rate increases of the 1990s.