Tax Reform: Not Till 2014 At The Earliest

I’m wading into Bruce’s and Pete’s territory here: Because of the failure of the anything-but-super committee to come up with a plan that included it, I don’t see how “tax reform” can be enacted and start to be implemented until 2014 at the earliest.

And even that may be overly optimistic.

That’s not to say that some tax changes won’t be discussed and enacted before then. Contrary to what many are saying, I actually expect some changes to be adopted by the end of this year, that is, within the next four weeks. For example, one way or another an extension of the payroll tax cut seems particularly likely to happen before Congress leaves for Christmas.

But however important they might be, changes like that are tinker toys compared to the comprehensive tax reform that is now very much on the wish list of many corporations, individuals, lobbyists, associations, academics, and pundits. You know the one: the plan that would lower the overall tax rate while eliminating many of the existing deductions and credits in the code.

In spite of the rumors, hopes, dreams and innuendo, and even though the chairmen of the House and Senate tax-writing committees were members, the super-bust committee was never going to be able to do tax reform even if it had been able to come up with a deficit reduction plan. The reason? It only had two months and tax reform as defined above is a multi-year process. There simply wasn’t enough time, enough tax expertise beyond the chairs of the House Ways and Means and Senate Finance Committees or public support for doing what would have had to be done for the not-super committee to do it.

Even the promised land of the expedited legislative procedure that was part of the please-don’t-call-it-super committee process (a quick review by the tax-writing committees, no amendments allowed in either the House or Senate and no filibuster in the Senate) wasn’t enough to overcome the very basic hurdles that face every tax reform effort.

Where does tax reform stand now that the much-less-than-super committee failed?

1. Not in 2012. Start with the fact that 2012 is an election year and tax reform will have losers who will end up paying more rather than less as well as winners who will pay less rather than more.

Then add the fact that “tax reform” as it’s currently is being used really is just a way to say “raise revenues” without having to say the politically toxic phrase “tax increase” out loud.

Add the current hyper partisan environment inside the beltway.

Then mix in the extreme uncertainty about which political party will control which house of Congress and the White House after the election and the likelihood that Republicans and Democrats both are likely to believe they will do better by waiting.

That makes 2012 a nonstarter for tax reform.

2. 2013 will also be very tough. Even if the hyper partisan environment somehow becomes less partisan after the 2012 election, the politically poisonous situation that will exist in 2012 likely means that the substantive preparatory work and public discussion that will need to be done to get tax reform moving will not have happened by the time the new Congress is sworn in. And if there’s a new administration, the chances of having a plan ready to go at the start of the year will be close to zero. It may not be until September 2013 at the earliest that serious work on a tax reform plan can get underway and, as history showed in 1986, it will take much longer than four months to get done.

3. 2014 is an election year. Never mind the hype; because of the deficit tax reform really means getting more revenue from the current system and that will make it exceptionally difficult to enact a plan in this election year. Even if one is put in place, implementation of any of the changes — especially those that will increase someone’s taxes — will be delayed until the following year.

Something could happen sooner if the 2012 election produces a big shift for either political party that no one concurrently is predicting. But without something that dramatic and unexpected, tax reform as it’s now being discussed likely is years away from happening.

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