Tax reform in 2017—the basics

Will Rogers once said, “The only difference between death and taxes is that death doesn't get worse every time Congress meets.” 

Will Rogers has a point. By large majorities, American taxpayers favor tax reform, one that eliminates loopholes and wasteful deductions and lowers tax rates. While business leaders will defend their own targeted tax breaks, no one will defend today’s tax code. America’s corporate tax rate is the highest in the world, and it has had a crippling effect on American competitiveness in the world marketplace. The companies that are moving their tax residence overseas to avoid U.S. taxation are not taking that step because they are unpatriotic; they are doing so because of the nation’s tax code. The growing number of inverted corporations is but one of many glaring examples of why reforming the tax code is so essential.


In introducing the Republican tax reform plan in June, the chairman of the House Committee on Ways and Means, Rep. Kevin BradyKevin Patrick BradyDemocrats give Trump trade chief high marks Democrats talk up tax credits to counter Trump law House panel approves bills on tax extenders, expanding tax credits MORE (R-Texas) correctly stated, “America’s tax code is beyond repair. Tinkering with it won’t work. The only hope is a bold tax reform plan that will liberate our nation from the slow-growth status quo and jump-start a new era of American prosperity and growth.”

Chairman Brady compared today’s environment to the political landscape of 1986, when the last major reform of the tax code was signed into law. He listed three important reasons 2017 could be like 1986 and the right time to achieve genuine tax reform: First, today’s tax code is overwhelmingly viewed by Americans as terribly complex, decidedly unfair and ripe for reform. Second, like 1986, there are fresh ideas for dramatically changing the tax code. Third, a hope that a new president next year will bring presidential leadership to the effort.

There is a fourth element that is critically important, and without it, tax reform will be doomed to fail. To be successful, tax reform legislation cannot be written only by the majority party. That is not tax reform, and no matter how much effort Republicans or Democrats might champion a partisan bill, in the end, it will fail. To start the discussion, it is understandable that Chairman Brady would introduce a GOP tax reform plan; the Democrats will champion their own proposal; but that is about politics and positioning as much as it is about tax policy.

Making a political statement is hardly worth the effort. To be successful everyone must have the opportunity to participate in the debate and invest in the result. It will not be necessary to get every vote, but finding a simple majority will not be easy no matter which party controls the Congress and who sits in the Oval Office. Former chairman of Ways and Means Dave Camp (R-Mich.) believes tax reform legislation is better and more durable when addressed with a divided government. That was true in 1986, and it is likely that will be the case in 2017.

The chairmen and the ranking members of the Senate Finance Committee and the House Committee on Ways and Means Committee have been clear that overhauling the tax code is a first priority, and they have each expressed their intent to pass a bipartisan bill.

A primary reason a strong bipartisan bill will be necessary is the opposition of industry groups that are organizing to protect the tax breaks important to their industries. A number of the proposals in the Brady tax reform plan will eliminate tax breaks that have been in the tax code for almost one hundred years, such as the business interest deduction and other tax provisions relied on by industries. Special interest groups and their lobbyists are already racing to Capitol Hill in opposition. 

One major difference between 1986 and 2017 is the move to dynamic scoring. Republicans have changed the budgeting rules that requires the Joint Committee on Taxation (JCT) to consider the economic benefits of changes in the tax code. The change from a traditional method utilized by the JCT will have an enormous political and economic impact on the debate. In 1986, President Reagan insisted on the final bill be revenue neutral, which imposed a strict discipline on reducing tax rates. With dynamic scoring, justifying tax cuts will be much easier, because the dynamic cost estimates will conclude that the tax breaks fuel economic growth and actually raise revenue. Democrats are united in opposition, but those are the rules the tax writing committees will adhere to.

The most important player to push tax reform over the finish line is not the Congress—it is the president. The next president must be at the center of the discussion from the beginning until the end. Tax reform in 1986 was successful for many reasons, but it would not have happened without President Reagan’s investment in its final passage.  

There are far too many unknowns to predict the success or failure of tax reform next year. In a divided government, major changes in policy, the hardest issues, are almost always accomplished because of two fundamental reasons: the bipartisan commitment of members of Congress and the engaged leadership of a president.  If that happens, 2017 might be the year, just like 1986, to reform the nation’s tax code, a truly historic accomplishment. 

Andrews is an attorney with King & Spalding. He served in Congress from 1983-1995 and was a member of the Committee on Ways and Means. Tom Spulak was a former General Counsel, U.S. House of Representatives. General Counsel and Staff Director, House Rules Committee.

The views expressed by authors are their own and not the views of The Hill.