Olympia's Blog

The Right Way Forward for a Taxing Issue

February 21, 2017

Tax reform is an issue I’ve often pointed to as critical to America’s competitiveness and job growth. Now that Republicans control both the congressional and executive branches, there is nearly universal agreement that some form of action will be taken. What it will look like, however, is still very much in question.

The answer in large part will depend on the willingness of both parties to collaborate on the outcome. As I have often said, on this issue like many others, Republicans and Democrats have been, for many years, like two ships passing in the night — one in the Atlantic, the other in the Pacific.

Overall, both parties believe that an overhaul of the tax code is necessary. That, however, is largely where the similarities have ended. In the past, for example, Republicans have generally called for tax reform to remain “revenue neutral” – which is to say it would raise the same level of revenue as today’s tax code. Democrats have favored allocating additional revenue toward government outlays, and opposed tax decreases on higher earning individuals.

Now, Republicans control the U.S. House, Senate, and White House simultaneously for the first time since 1928. Additionally, their majority status in both chambers of the United States Congress means that they are able to employ an arcane but powerful procedural tool called “reconciliation” to move and enact tax reform.

In short, reconciliation occurs in conjunction with passing a budget resolution, and under the rules can be used only very sparingly and for measures that affect federal revenues and spending. Reconciliation – which both parties have employed over the years — is key because it allows a bill to pass the Senate by a simple majority, rather than the 60 votes typically required to avoid a filibuster and pass most major legislation in the Senate. Additionally, when you have a president from the same party as that which controls Congress, the practical potential for a veto to be employed and sustained is drastically reduced.

All of this means that tax reform could now be enacted on a purely party-line vote. But just because something is possible doesn’t mean it’s the best option.

At the Bipartisan Policy Center, where I am a senior fellow, I co-chair our American Competitiveness and Job Creation Tax Initiative along with former Senate Majority Leader George Mitchell (D-ME), and former Representatives Earl Pomeroy (D-ND) and Jim McCrery (R-LA). In December, we authored a joint op-ed in The Hill in which we stated:

“…we believe the preferable path to enacting meaningful and effective tax reform is through regular order in the Senate. Maintaining the 60-vote threshold in the Senate is critical to forging compromise and coalition-building which not only produces better legislation – as the best ideas from both sides are considered – but also reflects the unique function and character envisioned for the institution by the Founding Fathers.”

Moreover, “Passing tax reform under regular order would also provide the certainty employers require to make the kind of long-term investments necessary for strong and sustained job growth by ensuring that the policy changes enacted will be permanent.”

Why is that the case? Because reforms enacted under reconciliation are generally only in affect for a period of ten years. And perhaps even more importantly, we have witnessed the fragility of legislation, like the Affordable Care Act, which has been enacted without a single vote from the other party. As history proves, it is vital for both the credibility and sustainability of our major laws that both sides are invested in its outcome and success.

Additionally, tax reform could create an opportunity to spark vital investment in America’s crumbling infrastructure. For example, as some have suggested, perhaps revenue from international tax reform could be utilized as a source of leveraging public-private infrastructure financing.

For tax reform overall, what will be determinative is whether the majority in Congress is willing to listen to, and incorporate differing views — and if those in the minority will work in a spirit of compromise to constructively offer viable alternatives.

Without question, it will not be easy. Each party will be under enormous pressure from their respective political bases. Moreover, as stated in a recent article in CNN Money entitled “Why Tax Reform is a Lot Harder Than it Looks, “Even if Congress chose to do nothing but rewrite the tax code in 2017, it would be a monumental task because there are so many constituent interests and competing demands to balance.”

Nevertheless, as we stated in our joint op-ed, “The question becomes whether people of good will from both sides of the aisle will transcend their differences and restore collective faith in the ability of our elected officials to govern and legislate on issues that go to the heart of economic security.” It will be up to all of us to insist that they do.

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Olympia's Blog

The Right Way Forward for a Taxing Issue

February 21, 2017

Tax reform is an issue I’ve often pointed to as critical to America’s competitiveness and job growth. Now that Republicans control both the congressional and executive branches, there is nearly universal agreement that some form of action will be taken. What it will look like, however, is still very much in question.

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