Two Parties Full of Empty Promises; Elect Independents to Reform Tax Code

By Charles Wheelan on September 19, 2017

The Republicans are now saying that tax reform is their next legislative priority. Is tax reform likely to happen? Almost certainly not. We need tax and fiscal reform; unfortunately the current political environment makes it nearly impossible.

Tax reform is the kind of issue that has to be tackled from the center, with reasonable compromises gradually attracting more support on the left and right. The two parties cannot do that by themselves right now. A handful of centrist independents could be the catalyst that starts such a process.

Democrats and Republicans tend to make promises during campaigns—particularly in their respective primaries—that make fiscal reform impossible.

Centrist independents, on the other hand, tend to be elected to get things done. They are not wedded to the unrealistic promises of both parties. Instead, they can represent the 60 percent of Americans who say they would support a budget compromise even if they did not agree with the specifics of the deal.

The country desperately needs a more efficient tax code and a master plan for putting the country back on sound fiscal footing. Tax reform and fiscal reform, though, are not the same thing.

Tax reform would involve removing the most distortionary tax loopholes, so that the tax code is flatter and broader.

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This sounds easy, but every loophole (e.g. the home mortgage interest deduction) has its own fan club. In theory, tax reform could be revenue neutral; a streamlined tax code could bring in the same amount of revenue as the old system, only in a way that encourages more productive economic activity.

But revenue neutral is not good enough given our huge federal deficits, mounting debt, and enormous unfunded entitlement liabilities.

We don’t need just a better tax code; we also need to fix the budget. The best way to do these things is all at once: a grand bargain that tackles tax reform, spending, and revenue all at once.

We know exactly what this kind of grand bargain might look like.

The Simpson-Bowles deficit reduction commission offered a comprehensive menu of recommendations in December 2010:

  • A flatter tax code with lower rates and fewer deductions;

  • Reforms to Social Security;

  • An increase in the gas tax;

  • A cap on federal spending as a percentage of GDP;

  • Reductions in health care spending; and so on.

Economists and policy types embraced the recommendations; our two political parties left them there to languish.

Paul Ryan, the Republican go-to guy on fiscal policy and a member of the commission, voted against the final report. President Obama never endorsed the commission’s findings.

And now here we are again, with a rotten tax code and rising federal debt. The two parties just can’t get it done. I firmly believe that just a handful of centrist independents in the Senate could get the ball rolling on some kind of grand budget deal.

Right now, the two parties are paralyzed by their own sound bites.

The Democrats have pledged not to curtail entitlements, even though any objective analysis shows that both Social Security and Medicare are on an unsustainable path.

Meanwhile, the Republicans have pledged not to raise any new revenue. Many candidates have been forced to take Grover Norquist’s anti-tax pledge.

Neither party has the temerity to face down the special interests, which will be required for tax reform.

Centrist independents are not tied to each party’s shibboleths. They have the legislative breathing space to float ideas that both parties are too timid to touch. They can be the honest brokers in a deal that will require some serious sacrifice by both parties, Taxes_2.jpgalmost like mediators in a peace deal.

In the current environment, if one party breaches a politically unpopular policy, such as reforming entitlements or raising taxes, the other party can get more political mileage out of shooting the idea down than by using it as a starting point for compromise.

Centrists can make those politically difficult first moves and build a coalition from the middle.

Do we have any evidence that independents are more inclined to make tough decisions? As a matter of fact, we do.

In Alaska, Governor Bill Walker was elected as an independent. When oil prices plummeted, state revenues plummeted, too, leaving the state with a huge deficit.

One logical way to cut the deficit was to reduce the Alaska Permanent Fund Dividend, the sum paid annually from the state’s oil wealth annually to each Alaska resident. When the state is in a huge fiscal hole, one way to stop digging is to reduce the size of the checks mailed out to nearly every person in the state.

Not surprisingly, most politicians have been wary of messing with the dividend, which is sometimes described as the “third rail” of Alaska politics. Governor Walker likes to say that he did not just touch the third rail; he gave it a bear hug.

In 2016, Walker used his line-item veto to cut the dividend in half, saving the state nearly $700 million.

Independents are different. It’s one of the things that makes them independent. They also have more political room to maneuver, because they have been elected by voters who want results rather than by those who demand fealty to unrealistic promises.

Can electing independents to Congress guarantee that legislators stop ducking tough decisions? Of course not. Does it make good governance more likely, especially on tough issues like comprehensive tax reform? Absolutely.

Charles Wheelan is co-chair and founder of The Centrist Project. It was based on his book, “The Centrist Manifesto.” He is also the author of Naked Money, Naked Statistics, and other books. Charles teaches public policy at Dartmouth.