Ag Policy Blog

Tax Reform Won't Exactly be a Walk in the Park

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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After the health care debacle last week in Congress, President Donald Trump and Republicans quickly sought to pivot to tax reform.

Tax reform, they said, is their bailiwick. Republicans own this territory, not Democrats. Treasury Secretary Steven Mnuchin said at a forum Friday, "Health care is a very, very complicated issue. In a way, (tax changes are) a lot simpler. It really is."

Mnuchin noted at the event hosted by the website Axios that the administration has been working on ways on proposals, especially by looking at what the president proposed during the campaign. "We've been working the last two months on tax reform," he said. "This is something we are designing from scratch and running through a lot of scenarios."

Mnuchin suggested that the Trump administration wants a tax reform bill by the August congressional recess. Mnuchin's comments were in the Washington Post. http://dld.bz/…

With that, the administration marches on to the next mountain after failing to hit the summit on the last one.

There are reasons, though, that tax reform has not happened since 1986. Tax reform is different from simply cutting taxes. Reform means not only reducing the complexity of the Tax Code, but also shifting the burdens.

The last time tax reform happened, it wasn't wrapped up in eight months. It took President Ronald Reagan three years to make some significant changes to the Tax Code. Reagan started the idea in January 1984. During his State of the Union speech, Reagan called on the Treasury Department to do a full study of the Tax Code and come back with ways to change it. That study didn't come back until late in 1984, after Reagan's re-election.

Again, in the 1985 State of the Union, Reagan called on Treasury Secretary James Baker to begin working with the congressional committees to make the Tax Code simpler, fairer, with a top rate of 35% "and possibly lower" with lower corporate rates that also would restore fairness in the system for families.

"We will call upon the American people for support and upon every man and woman in this Chamber," Reagan said. "Together, we can pass, this year, a tax bill for fairness, simplicity, and growth, making this economy the engine of our dreams and America the investment capital of the world. So let us begin."

The Great Communicator was at the height of his popularity, polling around 70% approval rating through most of 1985 and early 1986. He was working with a Democratic House and a Republican Senate. Yet Reagan and Baker got a Democratically led Ways & Means Committee to begin moving on a bill.

In February and March of 1985, the House Ways and Means Committee held 30 days of hearings on tax reform. By May, the Reagan administration had submitted its proposal for a comprehensive tax overhaul.

Ways & Means, feeling a lot of pressure from Democratic constituencies, did not mark up a bill until fall of 1985. It took 26 days to make it a bi-partisan effort. By the time the bill moved through the House floor in December 1985, it had the support of 188 Democrats and 70 Republicans to get it passed.

In the Republican-led Senate, hearings in the Finance Committee did not begin until fall of '85, and they carried on until spring of '86. Finally, in May of '86, the Senate Finance Committee moved to mark up its legislation -- a full year after the Reagan administration had offered its plan. The Senate, however, ended up in late June of '86 voting 97-3 to approve tax reform with a Senate made up of 53 Republicans and 47 Democrats (the mix now is 54-48).

Can you possibly imagine a 97-3 vote to move a tax bill out of the Senate this year?

Then the House and Senate had to conference negotiate on some very different tax bills. Yet, the conference report passed the House with 292 votes in September '86 and the Senate voted 74-23 the very next day despite a block of opposition senators from the GOP.

The tax bill became law October 22, 1986, just weeks before the mid-term '86 elections for Congress.

That '86 tax reform bill reduced ordinary income rates from a top rate of 50% down to 28%. Yet, it also raised capital gains rates from a 20% to 28%.

The New York Times, on Oct. 23, 1986, wrote of the tax bill becoming law, "For years to come, students of politics will look to the odyssey of the new tax law as a prime example of how the American system of government gets things done."

The Times added, "The process was peculiarly American annealing. Few other measures have been shaped and reshaped by so many conflicts and so much cooperation." http://dld.bz/…

The study of the 1986 bill suggests that a tax reform bill won't exactly be an easy lift, and it likely can't happen without compromise and cooperation -- two areas greatly lacking in Washington right now.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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