How to Make a Deal, Tax Reform Edition

In a blog post cross-posted at Tax Policy Center and Forbes, Howard Gleckman summarizes a talk that American Action Forum president and former CBO director Doug Holtz-Eakin made at a National Tax Association conference last week. Holtz-Eakin laid out four simple--or not so simple--steps to getting tax reform. As Gleckman summarizes, they are:

1. Recognize that the U.S. will have a progressive tax code (the flat tax, he said, is, “naïve”).

2. Agree on a top rate.

3. Agree on how much revenue you want to raise.

4. Eliminate or scale back the tax preferences you need to accomplish the first three.

Easy-peezy, as they say.

Gleckman says that agreeing on number one should be easy since the political consensus is there--not to say there aren't flat tax/consumption tax proponents out there. He rightly points out that number three is the key to a deal and the most difficult obstacle. The revenue target, however, has been an ongoing argument for a few years that has gone nowhere, which by default has meant that our revenue path has not been changed.

Agreeing how much revenue the government should raise as a percent of GDP is a much better way of targeting revenue rather than targeting the change from a baseline. It removes the games that have only gotten more complicated in a recent years as the number of temporary tax provisions has continued to rise and cloud the baseline. Also, it more explicitly links the process of collecting taxes to the size of government that is collectively desired. That's the point of taxes in the first place--to fund government.

Once policymakers agree on a revenue target and a top rate, Gleckman says, the politics becomes much easier.

The last step in Doug’s roadmap is figuring out how to pay for reform. And, oddly perhaps, that might be the easiest bit of all. As Ronald Reagan, Dan Rostenkowski, and Bob Packwood learned in 1986, once the leadership agrees on a rate and a revenue number, it is very hard for the lobbying class to fully protect its clients’ interests.

Tax reform is by no means simple. Even beyond the politics, there are a number of complex and technical issues that must be considered when overhauling the tax code. Still, lawmakers can make it easier on themselves by setting their goals ahead of time and working towards a system they can agree on that meets those goals.

Of course, if agreeing on goals were that easy, we wouldn't be in this position.