MY VIEW: Bill Frenzel July 2013
In a Brookings Institution piece, CRFB board member and former Representative Bill Frenzel (R-MN) addressed the next biggest item emerging on the Congressional agenda: tax reform and its relation to the national debt. Senate Finance Chairman Max Baucus and his Republican counterpart, Sen. Hatch, have already begun working on a tax bill, and with roughly 60 percent of the nation ranking tax reform as a top priority, they have much of the country behind them.
Although Baucus and Hatch are taking a page out of the Simpson-Bowles report by beginning with the highly praised "blank slate" approach, Frenzel argues that big challenges will still await.
Huge obstacles remain. No process, however inspired, can overcome the fact that tax reform is still an essential part of a budget bargain. Each party’s sharply conflicting budget visions are dependent on tax reform. The Democrats need tax reform to fund their “investments” and control their deficits. The Republicans need it for tax cuts to stimulate growth.
Those differences mean that a stand-alone tax reform bill is almost impossible. Tax reform is too big a part of the budget to move by itself. It must be a part of the budget bargain. A good start is welcome because, at best, tax reform is a difficult and time-consuming effort. But, it will remain inextricably linked to a budget agreement. If there is no budget agreement, there will be no tax reform.
Therefore, it is folly for tax reformers to get over-enthusiastic now. Sen. Baucus and Hatch, and Rep. Camp, ought to be commended for bravery, and encouraged. They have a couple of years of hard work ahead of them with a high risk of failure.
Frenzel argues that tax reform must come in the context of a budget bargain not just because of the role tax reform could play in reducing the deficit, but also because it cannot be passed without assurance that the public will know what to expect from future budgets.
A budget bargain requires negotiation and compromise on macro-accounts. Thereafter, the details can be thrashed out by the various committees. Tax reform has the same negotiation requirements, but, in addition, each petty little micro-detail has to be worked out in advance of passage. The devil is said to lurk in the details, and tax reform is the epitome of detail.
Perhaps an even greater problem is timing. A budget agreement and tax reform need to march together. If a tax bill is perfected long before a budget agreement is made, it will be subjected to a furious attack from all the losers in the preference game. No bill, however cleverly constructed, can withstand the full fury of a strong lobby scorned.
First created about 100 years ago and last reformed 27 years ago, it is clear that America’s individual and corporate tax systems are in need of significant reform in order to promote economic growth, fairness, and simplicity. Yet, as Representative Frenzel argues, it may only come to fruition when placed and addressed side-by-side with the looming national debt.
Click here to read the full op-ed.
"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.