Republicans want to recreate the success of the Reagan administration's landmark 1986 tax reform law before the end of the year, but they're going about the process in a completely different way this time.
“The Reagan tax reform was all about helping the American people — workers, middle-class families, and Main Street job creators. And it was about growing American jobs, paychecks, and our entire economy,” House Ways and Means Chairman Kevin Brady (R-Texas) said in an address this summer to amp the nostalgia factor at the Reagan Ranch in California.
Republicans say they have the same intention in mind, and they know what they want to do:
- shear the top corporate income tax rate to 20 percent from 35 percent;
- consolidate the individual income tax structure to three brackets from the existing seven with the possibility of another higher bracket for the wealthiest taxpayers;
- nearly double the standard deduction;
- expand the child tax credit.
They just want to get there much faster this time with a smaller margin for error — even though they have one thing going for them their elders did not, which is full control of Washington. Still, if they pull it off, it might turn out to be an even bigger feat than their predecessors enjoyed in 1986.
To gauge the differences, Independent Journal Review interviewed Jeffrey Birnbaum, an award-winning former reporter for the Wall Street Journal. There, in the 1980s, he covered the effort that led to the Tax Reform Act and in 1987 summed it up in the definitive tax bible, “Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform,” which he co-wrote with his then-WSJ colleague, Alan S. Murray.
He puts that knowledge to use today as president of public relations for the advocacy firm BGR Group, which represents some tax clients who have an interest in reform.
“[Republicans] need to be flexible and be willing to alter their proposal as the harsh crucible of legislation makes clear what’s possible and what isn’t,” he told IJR. He doesn't believe pushing through a bill in a few short weeks will work, but the realities of Washington today complicate his advice.
For starters, the remarkable thing that happened in May of 1985 is unfathomable in the political environment today.
Back then, a Republican president delivered a nationally televised speech from the Oval Office calling for tax reform, and immediately afterward, the Democratic chairman of the House Ways and Means Committee turned to the nation and gave a hearty thumbs-up. Both parties agreed on the need to reform the tax code.
“Every year politicians promise to make the tax code fair and simple, but every year we seem to slip further behind,” then-Rep. Dan Rostenkowski (D-Ill.) said in that speech. “But this time there's a difference in the push for tax reform... A Republican president has joined the Democrats in Congress to try to redeem this long-standing commitment to a tax system that's simple and fair.”
At the end of his remarks, the burly Ways and Means chairman told the American people to get on board the effort as well by writing a letter of support for tax reform. “Just address it to R-O-S-T-Y, Washington, D.C.,” he said.
More than 75,000 people did exactly that.
'Write Rosty' became a movement. T-shirts were made; bumper stickers were slapped on cars. The head of the Internal Revenue Service even wore a button with the slogan when he testified before Rostenkowski's committee in a 1985 hearing.
“The 'Write Rosty' incident is extremely rare,” Birnbaum told IJR, emphasizing the unique bipartisan agreement on the legislative endeavor.
“The only other time that I remember that happening was in the wake of September 11, 2001, when a national tragedy brought Republicans and Democrats and everybody together. There have been other things like that, but it’s a fairly rare occasion, especially during these polarized, partisan days,” Birnbaum said.
Public pressure for Congress to reform the tax code mounted, but Americans had little faith Congress could pull off such a feat. Members of Congress didn't have much faith in themselves, either.
The top individual income rate was 50 percent, but the wealthy were able to avoid paying much of that through a variety of legal means, like investing in tax shelter schemes that went largely unchecked at the time. To highlight the scope of the problem, “Gucci Gulch” cites a 1985 Treasury Department study that found in 1983, about 30,000 people who made more than $250,000 ended up paying less than 5 percent of their income in taxes.
“Politicians feared, rightly I think, that they would pay a price at the ballot box if they did not pass something to do with tax reform,” Birnbaum summarized. “That drove an otherwise improbable piece of legislation to success.”
Thirty-one years later, just about every tax wonk in the Beltway is deeply skeptical House Speaker Paul Ryan (R-Wis.) has enough juice to push through comprehensive, permanent tax reform before the clock strikes 2018.
Because tax reform is hard.
And because his colleagues on the other side of the aisle, shut out of the process thus far, are not doing anything that even remotely resembles a 'Write Rosty' campaign.
Yet there is still demand for changes to the tax code and a long-running personal interest driving Ryan to dive into it.
“Back then and now, there was a real problem with the U.S. tax code that was widely perceived as a problem,” Birnbaum said. While simplifying the code and cutting taxes are two general goals that both pushes have in common, today's concerns primarily reflect the challenge of remaining competitive in a modern global economy.
And there's that ever-present re-election issue: “If we don't pass a tax cut, we're dead,” Sen. Lindsey Graham (R-S.C.) told reporters last week of Republicans' chances in next year's midterm elections.
Bipartisanship is Gone
In 1982, Sen. Bill Bradley (D-N.J.), a professional basketball player-turned politician proposed merging the Democrats' priority of closing loopholes with the Republicans' demand to cut rates.
It was inherently bipartisan, and it eventually worked.
Bipartisanship was a necessity because the levers of power were split among the parties at the time: Republicans controlled the White House and the Senate, while Democrats held the House — where tax legislation must originate.
But Republicans — in control of both chambers of Congress and the White House today — are ditching the inter-party, meticulous approach that culminated in the passage of the Tax Reform Act of 1986 and are instead attempting to rush a still-forming partisan tax plan through Congress before the end of the year.
Thanks to a budgetary procedure known as reconciliation, GOP lawmakers in the Senate can pass a bill with a simple majority on a party-line vote. They don't need Democratic support, but they'd, of course, welcome it from a few key senators.
“I don't think this is going to be like 1986 where you had a bipartisan effort to scrub the code,” Senate Majority Leader Mitch McConnell (R-Ky.) conceded during a press conference this summer. “We will need to use reconciliation.”
Birnbaum believes that will fail.
“The mathematics today require bipartisanship,” he told IJR. The foundation of tax reform, he explained, has nothing to do with party loyalty. Tax reform is messier than that; the debate is largely regional, industry-specific, and parochial.
Both Republican and Democratic lawmakers from high-tax states like New York and New Jersey, for example, are opposed to limiting or scrapping the state and local tax deduction, an option Republican leaders are eyeing to finance the bill's cuts. Likewise, lawmakers from both parties who represent oil and gas states will look to beat back funding mechanisms that could hurt those industries' interests.
And if the GOP's bumbling Obamacare repeal failure had a prime lesson, it's that finding consensus within the Republican Party can be far more challenging than lawmakers assume.
Republicans insist they aren't ruling out working with Democrats, though, even as they proceed with reconciliation.
Trump has courted some vulnerable Senate Democrats who may be inclined to support a GOP tax plan over the past few months, and McConnell penned an op-ed two weeks ago calling for Democrats to work with Republicans on the venture. But with such an ambitious timeline, it would prove difficult to work through entrenched ideological differences between the parties in time to pass a bill by the end of December like Republicans intend.
While a partisan strategy may allow Republicans to pass a tax bill on an accelerated timeline if nothing goes wrong, some believe such an approach could have negative implications for the public's perception of the bill.
“If you resign yourself that this is going to be a partisan effort, you already have built in that half the country is going to hate this thing,” a GOP tax lobbyist told IJR on the condition of anonymity in order to speak frankly. “It's not going to be good, it's going to be evil, it's going to be anti-poor people. There's a built-in polarization that you've already accepted by going the partisan route.”
Timing is Everything
“Getting this to the president’s desk by the end of the year is achievable,” Ways and Means Chairman Kevin Brady told Hugh Hewitt in an interview earlier this month.
“Is it ambitious? Absolutely,” he admitted. “President Reagan’s reform took two-and-a-half years. We’re trying to do it in one year.”
Brady and others on the right leading the crusade, however, have pushed back the timeline repeatedly. Earlier this year, Treasury Secretary Steven Mnuchin predicted President Trump would sign the bill by August of 2017.
It took more than two years to pass a tax reform bill by 1986, beginning with the Reagan administration's release in 1984 of the first version of a tax plan. In the two years that followed, their tax bill died many times. Known as Treasury I, the White House's proposal was a groundbreaking reformist plan that cut against the president's pro-business instincts, and its sweeping elimination of loopholes and tax breaks alarmed the business world.
But it was a complete plan that spelled out how to raise enough revenue to pay for its cuts. Likewise, throughout the lengthy drafting process in Congress over the two years to follow, multiple iterations of comprehensive tax bills that named explicit winners and losers served as fallback options.
Republicans today have some modern versions from which to draw, namely the 2013 tax reform plan drafted under former House Ways and Means Chairman Dave Camp (R-Mich.). There was also last year's GOP tax reform blueprint, but that outline didn't fully address the various tradeoffs needed.
This year's tax push has been similarly light on specifics.
The Trump administration's first plan this spring was exceedingly vague. The proposal slashed the top corporate income tax rate to 15 percent from 35 percent, among other unrealistic goals, with no explanation of how to pay for them. Its lack of detail prompted one GOP tax lobbyist to describe it in a conversation with IJR as broad ideas from the campaign plan that were scribbled on a cocktail napkin.
“We don’t actually have a tax reform proposal yet,” Birnbaum agreed, despite the release of new details of the unified GOP tax framework last month. “It’s missing the key details about whose taxes are increased in order to pay for the lower rates and other benefits, and without that, there’s not really a tax reform plan.”
That doesn't mean Republican leaders and tax committee staffers haven't been hammering out those details behind the scenes. But what details do exist have remained private and have been limited by the slow pace of the budget resolution in the House, which sets the parameters for the tax plan. House Republicans passed their budget earlier this month, and the Senate passed its version last week, paving the way for the GOP's next steps.
But there is a slim window to find consensus for passage, let alone to debate the contentious policy points of the bill. Fewer than 30 legislative days remain on the calendar this year.
“There were more active, real-life debates about the details of tax reform and what it would actually mean in the public [in 1986] than now, and we’ll see if that’s an advantage or a disadvantage,” Birnbaum said. “I assume the leaders now are thinking that they will delay putting out the painful proposals in order to reduce the public criticism.”
The upside to sparking robust debate on the merits of a tax plan is that lawmakers can gauge public reaction and refine the legislation, he explained.
“The leaders, by delaying disclosure of the details, are delaying the inevitable and possibly also setting themselves up for rather than a quick victory, a quick failure,” Birnbaum told IJR.
It's still unclear which interests Republicans will cross to offset the drastic corporate cuts they're seeking, but party leaders are already bracing for interest groups to fight the tax breaks that might be under siege.
“An army of lobbyists will come to protect special interest provisions and to derail tax reform,” Ryan warned in a speech at the Heritage Foundation last week. “When it does, we must be able to count on the foot soldiers of the conservative movement to see this through.”
“Showdown at Gucci Gulch” borrows its title from the nickname lawmakers gave the hallway outside tax-writing committee hearing rooms thanks to the lobbyists in “shiny Italian shoes” who swarmed them to preserve their clients' hefty tax benefits.
Pushback from various interests is a constant between 1986 and today, though the most active soldiers and their footwear are bound to look a lot different this time.
Most of the radical reforming of the tax code that took place in 1985 and 1986 happened behind closed doors, during rare moments away from the scrutiny of tax lobbyists and competing interests. Lawmakers today are constantly glued to their cell phones, where they can see in real time how they are being deluged with grassroots advocacy.
“There are many interests that are watching this closely, and they have many more tools to make their own point of view heard, and that’s an additional obstacle to the success of tax reform this time around,” Birnbaum said.
Of course, the technology shift has affected every major piece of legislation in recent years as they wind their way through the legislative process, but it should be noted that it is much harder to hide a tax loophole or a new tax break these days.
What's more, as Forbes points out, Reagan enjoyed far higher public approval than Trump; the Great Communicator consistently scored above 60 percent in Gallup polls in 1986. Trump's Gallup approval rating has been stuck in the 30s since June.
In “Gucci Gulch,” Birnbaum and Murray contend the most important factor in passing tax reform was Reagan's involvement. His persuasiveness brought reluctant Republicans on board despite their concerns throughout the process.
Trump doesn't seem to have the same level of interest, nor does he enjoy the same relationship with Congress. His public feuds with senior GOP lawmakers, tendency to stir up controversy, and evident apathy to the finer points of policy during the health care push led many Hill Republicans to view him more as a liability than an asset to the legislative agenda.
But Birnbaum said the players who eventually rose to the occasion 31 years ago were unlikely advocates for tax reform, too.
“No one has any idea what greatness is in people until they are faced with the opportunity to show greatness,” Birnbaum told IJR. “If a real tax reform bill is attempted, there will be many people who will have a chance to show what they’re made of.”
Republicans haven't decided on the toughest details of their tax reform proposal yet. Those will become more clear when Ways and Means Committee members begin their markup of the tax bill in early November.
You can read a transcript of IJR's interview with Jeffrey Birnbaum here. It has been edited for length and clarity.