I don't normally have an interest in giving Democrats useful
advice on anything. I disagree with almost everything they stand for.
Nevertheless, I recognize that some major policies that I favor simply
cannot be accomplished without meaningful bipartisanship. One of these is
tax reform. For this reason, I am going to explain how Democrats can reclaim
credibility on this issue in a way that might be mutually beneficial.
The stimulus for this advice column is Rep. Dick Gephardt's
decision to step down as minority leader in the House of Representatives,
presumably to run for president. I've always viewed him as a truly moderate
Democrat, who got pushed farther and farther to the left by the necessity of
his position. As the center of gravity in the House Democratic Caucus has
moved continuously leftward since 1974, Gephardt, as their leader, had
little choice but to move leftward himself.
In the past, however, Gephardt has shown a willingness to chart
his own course. In this respect, one of his most important achievements in
Congress was to co-author the Bradley-Gephardt tax reform plan in the early
1980s. The Bradley in this legislation was former Sen. Bill Bradley,
Democrat of New Jersey.
The Bradley-Gephardt plan was important because, historically,
Democrats had used the idea of "tax reform" as nothing but a code word for
soaking the rich. In the tax reform acts of 1969 and 1976, Democrats were
only interested in taking away supposed "tax loopholes" used by the "rich."
There was no quid pro quo. The rich got screwed, but there was no benefit to
anyone else.
To their credit, Bradley and Gephardt recognized that this
approach was no longer viable in the Reagan era. So they combined loophole
closing with a reduction in marginal tax rates. This effort was central to
building political support for the Tax Reform Act of 1986, which lowered the
top income tax rate to just 28 percent -- if only briefly.
Without the Bradley-Gephardt bill, I doubt that President
Reagan's tax reform effort would have ever gotten off the ground.
Consequently, the top rate would have been 50 percent when Bill Clinton took
office. The 1993 tax increase might well have put the top rate back to 70
percent, where it was when Reagan took office, rather than the 40 percent
level Clinton imposed.
Unfortunately, since Bradley and Gephardt's legislation,
Democrats have been AWOL on the issue of tax reform. They seem to be happy
with the status quo and prefer attacking Republican initiatives to coming up
with anything of their own. But this is an untenable position politically.
The Tax Code is a total mess that desperately needs to be cleaned-up and
simplified. Defending this monstrosity, even in a de facto sense, is the
equivalent of defending Saddam Hussein.
Fortunately for the Democrats, Republicans haven't pressed them
very hard on the issue. The latter were too busy enjoying the perks of
majority status in the House by adding new provisions to the Tax Code to
benefit their constituency. But the result has been further tax complexity,
unfairness and misallocation of investment.
Democrats should take a lesson from Republicans when they were
in the minority. The latter found tax reform to be a very popular message.
This led to the development of many comprehensive reform plans that were
supported almost exclusively by Republicans.
Interestingly, the only Democrat tax reform plan to come forward
in the last 15 years was authored by Gephardt. His plan would have put the
vast majority of Americans into a 10 percent tax bracket, with the rich
paying more, paid for with further loophole closings.
This plan would have to be radically rethought in light of the
1997 and 2001 tax bills. Nevertheless, an opportunity exists today to do
almost exactly the same thing Ronald Reagan did in 1986. He mostly closed
corporate tax loopholes and raised taxes on corporations to pay for
individual tax rate reductions.
The same thing could be done today. Corporations have been
getting away with murder by creating and expanding their use of tax
shelters. Sooner or later, there will have to be a legislative fix.
Therefore, why not take the opportunity to just redo the 1986 tax reform?
Raise revenue from corporations and lower tax rates again.
With Treasury Secretary Paul O'Neill talking about politically
unpopular ideas such as imposing a value-added tax in order to abolish the
corporate income tax, there is the opportunity for a Democrat like Dick
Gephardt to outflank him. All he has to do is talk about lowering marginal
tax rates and many Republicans will follow him, rather than support an
obnoxious new VAT.
The tax reform issue is there for a sharp Democrat to pick up
and run with, as Jimmy Carter did in 1976. It could jumpstart the
now-moribund "New Democrat" message that elected Bill Clinton twice. If
Gephardt is smart, he will make it his key domestic policy initiative.
