Making Good Progress on Tax Reform

One view at year’s start held that President Trump would be signing tax reform into law by the August recess, to which most people seemed to respond, “Yeah, right.” Counterbalancing the pollyanna platoon were those who insisted tax reform had a metaphysically measured zero chance of passage. Tax reform was just too hard, and Washington very rarely accomplishes anything big anymore, they reasoned. The doubters are surely hedging their bets today, because in fact, Congress is pretty much on schedule to pass the first truly comprehensive reform in over 30 years. The House passage of a budget resolution setting out specific conditions for tax reform is just the latest, and most important, step to date.

Tax reform’s first big step was having a solid discussion document with sufficient detail to allow debate and evaluation, yet leaving enough questions unanswered as to allow for change. Ways and Means Committee Chairman Kevin Brady’s “Better Way” plan released in June of 2016 fit the bill perfectly.

The second step was to elect a Congress and a president committed to real, substantive, pro-growth tax reform. The election of November, 2016 checked that box, providing a House, Senate, and president seemingly on the same page, a first since the 1987 Tax Reform Act.

The next step involved demonstrating and memorializing the apparent agreement amongst the key actors. Starting from Chairman Brady’s discussion document, the “Big Six” including top White House and Republican congressional leaders and their staffs held innumerable discussions working toward the plan released this past July. This was a landmark moment because proponents needed a material demonstration of consensus before the effort would be taken seriously. Tax reform involves big choices and tough decisions. Nobody would want to work these and take the necessary political risks absent a serious prospect of passage. The Big Six agreement established such a prospect.

Critics complained the Big Six document still lacked too many details. Most such critics were merely disappointed they wouldn’t have enough material to derail tax reform. Their criticisms actually served to confirm tax reform’s building momentum.

The Big Six agreement included sufficient detail to describe clearly tax reform’s directions and goals, but left enough room to ensure the tax writing committees had the flexibility needed to make the numbers, the policy, and yes, the politics all fit together. The lack of details also meant legislators weren’t presented a fait accompli from on high. Many legislators in the House and Senate have given tax policy a good deal of thought. They have good ideas to offer and a fair expectation to have their voices heard and, in many cases, heeded.

The next great step in the march to pro-growth tax reform involves the House and the Senate passing budget resolutions with “reconciliation” instructions to facilitate tax reform’s passage. An agreed upon budget resolution will answer additional questions about tax reform, most particularly its allowable deficit impact. Last Thursday, the House passed its budget resolution. The Senate Budget Committee did likewise. The Senate is expected to take up the budget resolution when it returns from recess, and then the House and Senate will iron out their differences.

Tax reform still has a long way to go. But step by step, Congress and the Administraiton are making steady progress and even the most hardened pessimist is now forced to revise upward the odds of success. This is indeed fortunate, because tax reform can provide real relief to America’s middle class while doing more to improve U.S. economic performance than any other policy Washington is likely to consider.

Tax reform does come with a warning, however, because failing to enact a robust tax reform plan means the economy is likely to have some very tough times next year and beyond. Standing pat is not an option, and so failure is not an option.

About the authors

J.D. Foster

Dr. J.D. Foster is the former senior vice president, Economic Policy Division, and former chief economist at the U.S. Chamber of Commerce. He explores and explains developments in the U.S. and global economies.