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Saturday, October 13, 2012

Getting Tax Reform History Right

"For the past 75 years or so, tax reform has been defined by a tradeoff: broaden the tax base and lower rates,” as tax historian Joseph Thorndike explained in a recent article. That’s the framework behind the Romney tax reform proposal, as well as the last major federal tax reform in 1986. History tells us that such a strategy will work if the tradeoff and its pro-growth purpose are explained to the American people, and the mechanics of base expansion are then worked out in bipartisan negotiations with Congress. That’s the lesson from the 1986 tax reform in which Ronald Reagan put forth the general framework and the details were then negotiated with Democrats and Republicans in Congress. That history lesson is very important now, but it will be lost if Americans don’t get the history right.

That is why my colleague and tax expert Charlie McLure was so concerned when he heard Vice-President Biden describe President Reagan’s approach to the 1986 tax reform in the vice-presidential debate this week. Charlie served in the U.S. Treasury in the 1980s and was responsible for preparing the tax proposals for President Reagan. As Charlie explained in an email yesterday, the history told in the debate wasn’t right:

"During the Vice-Presidential debate, Vice-President Joe Biden asserted that President Ronald Reagan made his tax reform proposals public. The implication – and the only context in which the assertion would be relevant – is that he did so during the 1984 Presidential campaign. This is not true. As Deputy Assistant Secretary of the Treasury, I was responsible for preparation of the Treasury Department’s proposals to President Reagan. In his 1984 State of the Union address, President Reagan gave Treasury Secretary Don Regan the mandate to send him the proposals by a date in November that fell after the election. That is what we did. The President did not endorse the Department’s proposals and did not send his proposals to the Congress until May 1985, six months after the election. Had he done that before the election, the resulting demagoguery would have forced him to take so many options off the table that the Tax Reform Act of 1986 would not have happened – or at least would not have been the landmark legislation that it was."