A lobbying lesson for tax cuts, from 1978

Contrary to the old saying, there are three certainties in life — death, taxes and a never-ending capital gains debate. Just read the news today. When it comes to tax policy, there’s no exception to history repeating itself.

Thirty years ago, the seemingly impossible occurred when President Carter’s populist proposal to tax capital gains as ordinary income, nearly doubling the rate in some cases, morphed into a dramatic tax cut from 49 to 28 percent, helping to usher in a pro-growth era.

As a former tax lawyer with the Ways and Means Committee, a member of the Transition Task Force on Tax Policy for President-elect Reagan and the president of the American Council for Capital Formation, I’ve participated in many wins, losses and ties on tax policy. I’ve seen advocacy organizations and coalitions skillfully map political victories. And I’ve witnessed many fall flat on their face. But I still remember that capital gains tax fight 30 years ago as a textbook case study
for an effective, broad-based effort to change public policy.

Today, with the change in power in Congress and a crowded field of presidential hopefuls, tax policy is once again on the front burner — be it the Alternative Minimum Tax mess, recent focus on the capital gains tax treatment for private equity, venture capital and real estate partnerships, extension of the Bush tax cuts or sweeping fundamental reform.
Today, the strategy for this kind of fight remains the same as it did in ’78. When it comes to tax policy, you need a recipe with four essential ingredients:

•Brawn. Organizations with political muscle have a well-known name, sizable membership rolls and even bigger bank accounts. These organizations, expert at lobbying, grassroots campaigning and political contributions, are the way to get the attention of policymakers. Typically, their biggest weakness is a lack of intellectual depth.

•Brains. Washington has no lack of think tanks from the left or right side of the political spectrum. These groups can provide the intellectual depth necessary for policy debates, but all too often, they are not the ones to navigate the political labyrinth of the legislative process or to know what members of Congress to talk to or how to deliver the three key points on TV.

•Hearts and Minds. The power of popular appeal shouldn’t be underestimated. The capital gains debate often gets boiled down to Joe SixPack versus Daddy Warbucks. Unless you have a way to speak to the public, the debate is lost. In 1978, we had broad public support and many influential members of the Fourth Estate who agreed that a capital gains tax cut would result in more jobs, a stronger economy and a better standard of living, as well as reaffirm the “Horatio Alger” dream of many Americans.

•Credibility. Washington is filled with shallow (but cleverly named) front groups for special interests. Groups that go the distance are the ones that have taken the time to establish strong bipartisan relationships and are recognized for the intellectual integrity they bring to the debate. They have the credibility of experience, as well as positive relationships not just with lawmakers on both sides of the aisle, but with the business community, the public-interest world and the media.
Anyone serious about economic policy change won’t make it past first base without these traits.

Six months before President Carter signed the 1978 capital gains tax reduction into law, nary a soul in Washington or in the business community believed that such a dramatic tax reduction could happen. But thanks to a well-planned strategy laid out by a strong coalition led by the American Council for Capital Formation, the key pillars necessary to win were in place: political muscle to get to the right leaders to help carry the water, top-notch research by respected experts to validate the economic benefits and dispel the myths of the naysayers, the ability to win the hearts and minds of the public and the media that saw the broad economic benefits, and of course the credibility to build a substantial alliance of supporters.

Today, when populism seems to be overwhelming pro-growth policies, is it wishful thinking to try to repeat the story of 1978, which turned the focus of tax policy to competitive job creation, strong economic growth and better living standards?

Only if a business community that is normally balkanized because of parochial interests and competitive advantage speaks in unison for a strategy that benefits the overall American economy.

Can the business community once again step up to the plate?

Bloomfield is president and chief executive of the American Council for Capital Formation (www.accf.org ), a nonprofit, nonpartisan organization dedicated to public policies supportive of saving and investing to promote long-term economic growth, job creation and competitiveness.