September 19, 2017 at 5:00 am ET
As someone who helped write the last successful tax reform bill in 1986, let me make two predictions about the tax reform effort in 2017.
First, it’s a heavy lift and it won’t succeed without bipartisan support. With the support of both political parties this can succeed. If only one party is writing the bill, it will fail. Tax reform needs the best ideas from both parties.
Second, I think it has to be revenue neutral. That was one of the first decisions then-President Ronald Reagan and the leaders of a Democratic Congress made when they began work to reform the tax code in 1986. That decision is even more important now. We should not be adding to the burden of a large federal debt as we reform the tax code.
The American people don’t need persuading that the tax code needs to be changed. They know our tax system is both complicated and unfair.
So President Donald Trump and congressional leaders are right to be pushing tax reform. Done right, it is good for our country in every way.
The last time we truly “reformed” the tax code was in 1986, and it was widely viewed as a major achievement. We were able to reduce the top income tax rate to 28 percent by closing loopholes. We made the tax code simpler and fairer for all Americans.
That legislation was supported by both political parties. In addition, it was revenue neutral, which meant we didn’t alter the amount of money that was brought into the government.
We didn’t raise taxes or cut taxes in the aggregate. Instead, we made major changes to simplify our tax code and restore fairness. The result was some taxpayers who weren’t paying their fair share had to pay more, which allowed other taxpayers to get a tax cut.
It would be a mistake to focus on just cutting taxes rather than reforming the tax code. The current U.S. debt is nearly $20 trillion dollars and the yearly budget deficit is scheduled to continue increasing at an accelerated rate (this fiscal year it is estimated to be nearly $700 billion).
Moreover, our country has been involved in a war in the Middle East for over 14 years, and no one has ever been asked to pay for the costs of the war. Those costs have been added to the federal debt and charged to a future generation.
Some economists (not many) make the point that if the government will cut taxes, it will spark more economic growth, which will more than make up for the lost tax revenue.
But most credible studies do not support that point. Many studies will show a small boost in economic growth from tax cuts but far short of covering the cost of the tax cuts. The result would be a net revenue loss contributing to an increase in federal deficits and debt.
In the 1986 tax reform debate, the leadership of President Reagan, Rep. Dan Rostenkowski, Rep. Barber Conable, Sen. Daniel Patrick Moynihan, Sen. Bob Packwood, Sen. Bill Bradley, Rep. Richard Gephardt and many others was strong and relentless. Reagan, with his Treasury secretary, Jim Baker, pushed hard to make it happen. That is the type of support that is needed from Congress and the president to be successful.
The Constitution requires tax legislation to start in the House Ways and Means Committee. If a core group of congressmen from both political parties are dedicated to working together to develop a revenue-neutral tax reform plan, they, and the U.S. Senate, can make real tax reform happen.
It is a pattern we know can be successful. This is the time to finally get it done.
Byron Dorgan is a former Democratic senator of North Dakota and current co-chair of the Arent Fox Government Relations practice.
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