Robert Novak and Trent Lott want George W. Bush to campaign on comprehensive tax reform. But there's no sign the Bush campaign is interested. Good thing, too.
Novak, Lott, and many other conservatives believe that scrapping the tax code has more populist appeal than Bush's tax-cut proposal. Taking up the cause would strengthen Bush's credentials as a "reformer," which is widely supposed to be imperative to attracting the "McCain vote" (which may not exist, but that's another story).
Bush's economists, however, believe that tax reform must proceed incrementally, not least because of the formidable problem of how to manage the transition from the old tax code to a new one. They note that
Reagan's tax cut preceded his tax reform by five years. They argue, also, that Bush's proposed tax cut simplifies the tax code substantially: It eliminates the estate tax, which takes up five percent of the tax code by itself and as much as another five percent by its interaction with other tax provisions.
Besides, tax cuts are the most important tax reform. The lower tax rates are, the less valuable are all those deductions. As a result, those deductions distort the economy less, and there is less incentive to lobby for new ones. Removing those deductions altogether would involve political risks disproportionate to any economic benefits that could be thereby gained. Is it worth it to Bush — is it worth it to conservatives — to take on every interest group in Washington, D.C., in the middle of a tight election? The question answers itself.
Bush's own experience as governor of Texas provides a cautionary tale about the politics of tax reform. He proposed an ambitious reform package
in 1997 and got his head handed to him. The political difficulty with Bush's plan was that it involved raising some taxes. He could protest all day long that it was a net tax cut; it made no difference to the people
whose taxes were set to rise. The substantive difficulty with the plan was that it might well have led to a tax system in which it would be easy to raise taxes. (Grover Norquist's group Americans for Tax Reform opposed the plan for that reason.) That's a danger posed by some of the national tax-reform proposals, too, since they take so many people off the tax
rolls entirely. (It is, indeed, an inherent danger of populist tax reform, which always aims to replace hated taxes with still-unpopular-but-less-hated ones.)
There's no particular reason to seek to replicate Reagan's experience with tax reform either. The 1986 bill, though flawed, cleaned up the tax code
quite a bit. But what did it do for conservatives? It did not make it easier to achieve any further policy goals, and arguably set some back by setting the S&L crisis in motion. (A lot of real-estate investments that
had made sense under the previous tax code went under. Result: A lot of Republican bankers went to jail.) And its popularity did not keep the Republicans from losing the Senate that fall.
Because tax reform is ideologically indeterminate, it is a cause that can always be hijacked by the Left. There was a whiff of this in the McCain plan, which would have raised taxes on corporations in the name of reform.
But that doesn't mean that Bush should leave every syllable of his tax message in place, or that there's nothing to learn from McCain. McCain was right to suggest that cutting marginal tax rates is not as pressing a concern now as it was in 1981, with stagflation and a 70 percent top income-tax rate. Cutting taxes on families' savings and investment is more in keeping with the temper of the times. That's what McCain proposed, though he was too busy fighting the Death Star to make much of it. There's
no reason Bush can't steal the idea, and pair it with his own.
