At long last, the House has finally taken a definite step down the much-touted road of tax reform. The headlines are huge, claiming total tax cuts of $1.5 trillion. That would be an awesome shift in income distribution, exactly the kind of aggressive re-priming of investment funds necessary to crank GNP growth up to 6% or better.
That's how the supply-side gospel reads, anyway.
Understandably, many Republican members of Congress view this late-year attempt to boldly check Washington's ravenous appetite for tax receipts as a fitting tribute to President Ronald Reagan, the great champion of limited government who in many ways dominated the 1980s by rewriting the trajectory of the private/public script.
Wouldn't the Gipper be proud of the new landmark legislation potentially waiting in the wings? Not necessarily.
When Reagan triumphantly rode into town in January 1981, reduction of the highest tax rates for individuals was near the very top of his agenda. Indeed, within five years, this critical piece of Reaganomics had historically transformed the tax code. The Economic Recovery Tax Act of 1981, which cut the top federal bracket to 50%, was eventually followed by the Tax Reform Act of 1986, which further lowered it to 28% and reduced the number of brackets to only two.
Yet to suggest that the Reagan team was only interested in slashing rates and eliminating brackets (pretty much the focus of the House bill just passed) would be to make light of its appreciation of the larger economic and political picture. In short, Reagan's assessment and approach to tax reform was far more sophisticated than the hurry-up-and-vote drill we are now seeing in the waning days of 2017.
Beyond significantly easing the tax burden on the investment class, Ronald Reagan insisted upon legislation that was revenue neutral, critical of unjustified tax shelters, and reflective of some kind of national consensus. To be sure, part of this broadmindedness may have been forced on him by the fact that the Democrats held the House.
Tip O'Neill and Dan Rostenkowski were not so much "good guys" as unmovable speed bumps that had to be dealt with. Nevertheless, Reagan was smart enough to see that both sides of the isle shared a common denominator when it came to the need for tax reform. Federal tax law had become a massive monster, bloated by lobbyists and special interests, hopelessly riddled by contradictory sections of incentives, disincentives, penalties, rewards, credits, and charges.
Here's but one example that should hit home with many DTN beef producers and aging tax preparers. Once upon a time, top feedlot managers and cattle ranchers were on the speed dial of every major accounting firm in country. Prior to the Reagan-led reform of 1986, year-end tax planning for the rich and famous (i.e., high-rollers that didn't know one end of a cow from the other) often involved the aggressive pre-payment of cattle feed and/or taking investment credit/depreciation on bred heifers.
On paper, it was a brilliant way to defer tax liability. Who cared about the prospects of making money in the cattle market? Who cared whether tax planners skewed supply and demand fundamentals for legitimate beef producers? Heck, even if cattle prices imploded, the tax-feeders would have all the more losses to write off the following year.
Clearly, this was one tax shelter that needed to meet the nose of a bulldozer. It's gone thanks in large part to a rare example of bipartisan wisdom. Unfortunately, I don't think you can point to anything similar in the piecemeal, short-sighted offering the House has just thrown on the table.
So if you think the spirit of Ronald Reagan was somehow smiling down on Speaker Paul Ryan's reckless process and shoddy product this week, you may be well served to review just how seriously our 40th president took the subject of tax reform.
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