The conventional wisdom is that House Ways and Means Committee Chair Dave Camp’s tax reform proposal (or anything like it) is not going anywhere soon. That conventional wisdom is correct. If anything, folks have been too optimistic. There is a 99.9 percent chance we won't have major tax reform before 2017. There are two big reasons why.
First, President Obama’s heart is not in it. Throughout his presidency, he has made positive remarks and made some vague proposals about corporate tax reform. But on individual reform he is silent. Contrast this with presidential leadership before the passage of the Tax Reform Act of 1986. President Reagan pushed the tax reform agenda forward in leaps and bounds. Obama is taking only cautious, baby steps.
Second, there is a fundamental irresolvable conflict between our two parties on how to proceed. Republicans insist that tax reform should be revenue neutral. Democrats insist that it should raise revenue. People say often say there is bipartisan agreement on tax reform on Capitol Hill. That is a myth. We are gridlocked.
So if the Camp discussion draft is a non-starter, why are so many busy people spending long hours and days trying to digest this 979-page opus?
The Camp discussion draft has changed the tax policy landscape like no other single document in the last three decades, for two reasons. First, it has burst the bubble of all the feel-good tax reformers who have been wasting our time promoting unrealistic tax plans. The Camp plan is the ultimate reality check on tax reform. It is far more complicated and painful than marketers of tax reform have told the public to expect. It is unlikely that any realistic tax reform would be any shorter or sweeter than the Camp draft.
The Armey flat tax, the Linder FairTax, the Cain 999 plan, the Bowles-Simpson zero plan, etc., are all pie-in-the-sky proposals that serve the political purposes of their promoters and little else. They bear no resemblance to what a tax reform with all the features necessary to pass the U.S. Congress would look like. Now, instead of feeding the public a dream of some mythical ideal tax system that doesn't exist, Congress will roll up its sleeves and begin working on realistic, incremental reforms to our system.
The second reason the Camp reform is monumentally important is the extensive and detailed workmanship that went into it. With input from hundreds of experts who deal daily with the realities of modern tax practice, the experienced and highly expert staffs of the Ways and Means Committee and the Joint Committee on Taxation worked for three years on the draft. This was not an academic exercise. With feet firmly planted in the real world, taking into account practical administrative and political considerations, they have made hundreds of detailed suggestions on how to improve the code. To name a few, the taxation of U.S. investment in foreign countries, of pensions, of higher education, of energy, of insurance companies, of nonprofit organizations, of research and development, of private equity funds, of real estate investment trusts, and of municipal bonds are all areas of the law that have been overhauled by the draft.
On Capitol Hill, it is long-standing custom among the press, our elected representatives, and the staff members themselves to act as much as possible as if the staff did not exist. Members of Congress must get all the attention, and the press is glad to accomodate. If you go along with this charade and just read the press releases, you could be left with the impression that the Camp bill is just another tax plan that—as the saying goes—will gather dust on the bookshelf. For the public and the general press, the Camp draft has already fallen off the radar. But for those who want to know where the future of tax policy is going, the Camp draft is an invaluable guide. True, we won't have a tax reform with 25 percent rates anytime soon. But when Congress considers paring back extenders (sometime this year) or when it needs to raise some miscellaneous billions in revenue, the first place everyone will look will be the Camp draft. And as the reality sets in that Congress may be biting off more than it can chew in attempting major reform, it is likely that lawmakers will consider breaking tax reform into parts. Again, the first document to be consulted in any such effort will be the Camp draft.
