In Washington, being right doesn’t guarantee success. Sometimes, assembling the right team, or laying out the right process, or having more stamina than anyone else can make the difference. Sometimes you need all three.
In 1986, two very different personalities on opposite sides of the Capitol had the same idea. Representative Dan Rostenkowski, a Democrat, and Senator Bob Packwood, a Republican, each decided that they would personally lead the effort to reform America’s tax code. Never short on ego, the two tax committee chairmen threw themselves into the task. After months of tortuous negotiations, they emerged with a bill that lowered rates across the board while repealing hundreds of tax breaks. Tip O’Neill blessed it, Ronald Reagan signed it, and, for the first time in decades, the tax code was simpler.
Everyone agreed on one thing: They never wanted to go through it again.
Twenty-six years later, tax complexity has grown back with the vengeance of Beltway kudzu. As a candidate, Mitt Romney has made lowering rates and wiping out loopholes a centerpiece of his economic plan. If he wins the presidency next week, it may be a “Back to the Future” moment. The stars are aligning for the kind of once-in-a-generation knockdown drag-out fight immortalized in the book “Showdown at Gucci Gulch.”
After surfacing again in Steve Forbes’s flat-tax insurgency in the 1996 presidential campaign, tax reform has gone mainstream in recent years. Both parties have embraced simplification, with Senator Ron Wyden, a Democrat, writing one of the most comprehensive legislative proposals out there. The idea is central to the Bowles-Simpson deficit reduction plan as well, but wishing won’t make it happen. And even if done right, there will still be plenty to complain about.
The difficulty of the task begins, but does not end, with its sheer size and complexity. The code brings $2.9 trillion into the Treasury each year and touches every manner of commerce and activity. The choices of where to begin are infinite. Cut the rates or reduce the number of brackets? Focus on corporations first or deal with personal income taxes? Eliminate tax breaks across the board or single out the highest earners? These answers can’t be found in political slogans or popular polls — and they can’t be dictated to Congress. They will have to be negotiated through painstaking give-and-take with the leaders of the House Ways and Means and Senate Finance committees.
More than anything, a political effort this complex quickly becomes an exercise in understanding human behavior. Every tax break that comes to the chopping block carries a narrative of its own: Who created the provision — when and why? Are there natural opponents to the current law or less expensive ways to bring about the same result? Are there other issues that a member of Congress cares about, and are they willing to make a trade? Dave Camp, the GOP chairman of House Ways and Means, and Max Baucus, the Democratic chairman of Senate Finance, need to be partners in the effort, knowing when to use the carrot and when to bring the stick. By assembling a team that already knows the players, their history, and their personalities, the president can stay a step ahead of the game.
While members of Congress grind through substantive negotiations, every interest group that ever lived will be pleading its case to anyone who will listen in the halls of Congress. Tax reform hits the widest array of constituencies imaginable: everyone. It touches every corner of the economy from health care to farming, manufacturing to energy production, real estate to long-term care. Both the administration and congressional leaders need to be steeled for the lobbying maelstrom. The sooner Congress stops trying to accommodate everyone, the better the chances for ultimate success.
Passing tax reform legislation will be a tough and painful experience for the president, his staff, Congress, and every lobbyist in Washington. So why bother? It’s simply too important to the American economy to ignore.
Fewer pages of code will save billions in compliance and collection costs. Eliminating special treatment for favored activities encourages more efficient allocation of capital. Lower marginal rates creates greater incentives to work and invest. All it takes is a White House team that understands how Congress works, congressional leadership that wants to get it done, and a high tolerance for pain. When I was an engineering undergraduate, we had a phrase for moments like this: “Misery builds character.”