The voices of Tax Policy Center's researchers and staff
If you still thought there was any chance Congress would pass tax reform before the next election, you can officially abandon hope.
In an online interview published Sunday on Morning Consult, Senate Majority Leader Mitch McConnell (R-KY) hammered the last nail in the coffin. Asked about his priorities for the rest of the year, McConnell replied, “We’re certainly not going to be able to be doing big, comprehensive tax reform with this president. The president is not interested in revenue neutrality, and he’s not interested in treating all taxpayers the same, so I don’t think we’ll get there on comprehensive.”
Then there is Tax Analyst columnist Marty Sullivan (paywall), who this morning wrote what I believe is the first piece to dope out the tax reform politics of 2017. If you are a tax geek, maybe it’s time to focus on what the presidential candidates have to say (so, far, quite a lot, at least among Republicans). Other than that, you can take the next 18 months off.
McConnell’s claim that the failure of reform is entirely President Obama’s fault is partisan spin. Both sides shoulder plenty of blame. But his diagnosis of the problem is at least half right. As long as Democrats and Republicans are unable to agree on how much money the tax system ought to raise—and they cannot-- arguments over design are futile.
But the challenges go deeper than that. Neither party wants to be the first to call for repealing, or even trimming, popular tax breaks—the inevitable price of lower rates if reform is not going to add to the national debt. Former GOP House Ways & Means Committee Chairman Dave Camp tried it, and he was hung out to dry by his own leaders.
Then, there are broader policy issues. Many Democrats, who have embraced income inequality as their 2016 campaign theme, are likely to back more targeted middle-income tax breaks, not fewer. Their agenda will be tax deform, not tax reform.
McConnell’s Republicans are all over the lot. There are flat taxers, fair taxers, x-taxers, and income tax reformers. And at least five presidential hopefuls are members of McConnell’s Senate GOP caucus. The Leader may want to show he can govern. But those candidates would rather have an issue to talk about for the next year-and-a-half.
If full-blown reform is not possible over the next 18 months, what about narrower legislation? Could Congress enact corporate or business tax reform, or at least clean up some problematic sections of the Code? There are many opportunities—consolidating the multiple incentives for savings, simplifying low-income credits, or improving the tax treatment of charitable contributions.
Sad to say, that’s unlikely too. Lawmakers seem unable to decide whether to tackle corporate reform alone or address all businesses (including S-corporations, partnerships, and sole proprietorships that file individual tax returns). This is a tough but crucial choice. And until pols can at least get a consensus on what they want to fix, progress will be impossible.
A housekeeping bill is at least conceivable. Bipartisan Senate Finance Committee workgroups are looking at issues such as the tax treatment of savings and charitable giving, though they were supposed to finish their work in May and have not. I suspect these efforts will fall victim to time as much as merit.
Congress faces a raft of must-pass bills between now and next December, including the highway bill, the inevitable expired tax provisions, the debt limit, and, of course, a funding bill to keep the government running. It is very likely that all of this stuff will get tangled up in a single, enormously complicated, and highly fraught bill sometime in the fall.
Plus, Congress may have to address fallout from the Supreme Court’s upcoming decision on the Affordable Care Act. And lawmakers will be gone for five weeks between now and early September. It is hard to see them taking on any new tax issues.
And next year? Forget it. It is a reasonable bet that Congress will do nothing except what it must, given that everyone will be in full-blown campaign mode.
Rewriting the tax code remains a critical long-term priority. All those GOP presidential hopefuls tell us it is very much a vibrant issue. But Marty is probably right: When it comes to big tax legislation, take two aspirin and call me in 2017.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.