Both presidential candidates — and the leaders of both political parties — were outspoken in their support for tax reform last year. Democrats have reneged on their pledge, however, hurting the cause of deficit reduction.
Tax reform is one of those malleable Washington phrases. It means different things to different people. The word “reform,” in fact, should probably be banned, because it vaguely suggests improvement while it, in fact, connotes only change, which is either good or bad, depending on your point of view.
To purists — and veterans of the Tax Reform Act of 1986 — tax reform has a specific meaning. True tax reform — and the kind of change embraced by both parties last year — involves eliminating or cutting back the value of deductions and other tax benefits to pay for reductions in tax rates.
The tradeoff of loopholes for rates was at the heart of the overhaul of the federal income tax system that was enacted with bipartisan support a quarter-century ago during the Ronald Reagan administration. It had the rare virtue of appealing to both political parties. The rate cuts were what Reagan and Republicans wanted. Democrats wanted to broaden the tax base by eliminating loopholes. The combination was and remains a powerful political opportunity.
Tax reform in its original form is urgently needed today. Democrats still want a broader base. It’s a way for them to crack down on “special interests.” Republicans continue to push for rate cuts. They see economic growth as the result.
In fact, Republicans would happily accept increases in federal tax revenues as long as rates are pushed downward in the bargain. That’s possible as long as plenty of deductions, credits and exemptions are removed from the tax code as rates decline.
In other words, tax reform is the fastest, surest way for both political parties to agree on a way to both grow the economy and boost revenues for the Treasury. How could anyone say no to that?
President Obama has, in effect, said no. In a subtle but significant change in his rhetoric, Mr. Obama has used the term “tax reform” to mean elimination of tax benefits without accompanying rate cuts.
After Election Day 2012, the president made clear that he was eager for tax increases. He got his way early this year, when lawmakers approved a tax rate increase for upper-income people as a way to solve the “fiscal cliff” mess. He has since talked a lot about tax reform. That’s a large part of what he says he’s demanding from Congress as a substitute for the deep, automatic spending cuts that go into effect March 1, called sequestration.
The reform he refers to, however, is only half of the true tax reform equation. He labels as “reform” the ending of tax benefits enjoyed by oil companies. He wants to get rid of tax breaks that encourage the shipping of U.S. jobs overseas (whatever those are). In general, he wants to take away deductions from upper-income families that already had their rates increased this year.
What he doesn’t propose to do anymore — as he explicitly did in policy statements listed on his campaign’s website last year — is to accompany those loophole closures with offsetting, or partly offsetting, rate cuts.
His silence on rates makes his calls for tax reform a deception. He gives the impression that he wants tax reform, but he, in fact, has hijacked and perverted the term for his own political convenience. He wants the kudos that comes with being a reformer without actually going through the hard work required to be worthy of the accolade.
Republican leaders say they want tax reform, and they mean it. They insist that rate cuts accompany the elimination of loopholes. Picking which loopholes go and which stay will be a difficult task and could well stifle their aspiration.
At least they still desire tax reform, though. Mr. Obama says he wants tax reform, but what he means is to end the tax preferences he dislikes and to call the change “reform.” That’s something different altogether.
Jeffrey H. Birnbaum is a Washington Times columnist, a Fox News contributor and president of BGR Public Relations.
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