DISCOUNTING FOR AN UNDERWATER EARTHQUAKE that sent 40-foot-high waves traveling thousands of miles across the open sea to inflict death and destruction on an unimaginable scale, it was kind of a sleepy holiday for the Washington political community, newswise. So you can understand the titillation that shimmered through the capital when the local paper announced, a few days after Christmas, that President Bush might delay his plan to "simplify" the tax code! "Bush Expected to Delay Major Tax Overhaul," said the headline in the Washington Post. At last there was something else to talk about on Inside Politics.
Really, though, no one should have been surprised. There was always something mysterious and unaccounted for about President Bush's pledge to make tax simplification a top item on his agenda. He first made this pledge in his acceptance speech at the Republican National Convention in August last year. Big, important speeches like that need a theme, also known as a "vision for the future," and thus tax reform was presented as part of the president's wide-angle belief that "many of our most fundamental systems . . . were created for the world of yesterday, not tomorrow." Therefore, he said, "we will transform these systems." The president sees himself as a modernizer. In particular, "the current tax code is a complicated mess--filled with special interest loopholes." After the applause had died down, he went on: "In a new term, I will lead a bipartisan effort to reform and simplify the federal tax code."
In all the
excitement generated by the unveiling of so ambitious an agenda (you knew it was ambitious because the commentators kept telling us it was ambitious) a few things were overlooked. For example, one paragraph before he promised to simplify the tax code, the president had promised to make our country "less dependent on foreign sources of energy." And two paragraphs after that, he promised to attract new businesses to poor communities by creating "American opportunity zones." And two paragraphs after that, he promised to "give workers the security of insurance against major illness." Then he promised to encourage the construction of "seven million more affordable homes in the next 10 years," and then he promised to make it easier for everyone to go to college.
Then he started talking about the war on terror, so no one had a moment to stop and consider that the way in which the president was going to modernize all these systems--the way he was going to do all this attracting and encouraging and security-giving--was by inserting exemptions and credits and deferrals into the tax code; by complicating the tax code, in other words, rather than simplifying it. For a modernizer, this seems pretty old-fashioned.
The confusion will be particularly acute for those of us who, waving away the mists of senile dementia, recall the federal government's last tax reform in 1986. Though pushed through by an oddball coalition of New Deal liberals (Dan Rostenkowski) and Rockefeller Republicans (Robert Packwood) and supply-side tax-cutters (Jack Kemp), the 1986 reform is best understood as a creature of Reaganism. Republicans back then claimed to despise what they called "social engineering," and especially the schemes, instituted in the tax laws, designed to force citizens into certain kinds of behavior. Their ideal instead was a neutral tax code, drained of favoritism and preference, leaving a system that treated all citizens alike. By closing loopholes--eliminating exemptions, canceling credits--reformers could broaden the pool of taxable income and, in compensation, push marginal income tax rates as low as they could feasibly go.
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