The Rise and Precipitous Fall of Serious Bipartisan Tax Reform

When Republican Dave Camp released his plan, observers on the left and right praised it. Then reality set in.

The climate this year for significant policy accomplishment is as grim as it could be.

The objectives for Republicans were set early on by the schedule proposed by House Majority Leader Eric Cantor: fewer than 90 days in session before the election (including many half days and pro-forma sessions—and that number may get smaller along the way), and more votes, now up to 50 overall, on repealing Obamacare. And there was the memo from the majority leader making it clear that anything that might divide Republicans heading into an election about the performance of the Obama administration is a nonstarter.

Democrats in Congress, who will be judged more by performance than Republicans, would love to have some signing ceremonies in legislative areas ranging from jobs and infrastructure to education, extension of unemployment benefits, and the minimum wage. This is true even though many Democrats might prefer to have a popular issue like the minimum wage to use against Republicans and counter the criticism of Obamacare.

This dynamic makes it even more interesting to see Dave Camp, the Republican chairman of the House Ways and Means Committee, come out with a bold and detailed tax-reform plan—not just a "framework" that ducks the tough questions—and to note Eric Cantor's pledge to come up with, and pass, a Republican alternative to Obamacare. Could it be that we are on the verge of a new age, one where meaningful, major substantive policy alternatives are on the table, ready for real debate on the battleground of ideas? And maybe even progress?

Nah.

It did look promising for tax reform at the start. Camp's draft plan started with extraordinarily positive responses (with caveats, of course) from prestigious individuals and groups on the left and the right. Washington Post columnist Steve Pearlstein and The Post editorial board, along with liberals Jonathan Chait and Matthew Yglesias, were complimentary, as were conservatives like Alex Brill, Ed Rogers, and Timothy Carney. There were quibbles about the details, but the fact that Camp had done what he set out to do—reduce tax rates, simplify the code, and keep the plan (at least for 10 years) revenue neutral, while also hitting the rich and major special interests to enable him to reduce the rates—was refreshing and admirable. Camp's plan also provided a terrific starting point for real debate and deliberation about major tax reform. In that sense, it reminded me of the Bradley-Gephardt plan in the mid-1980s that provided the framework for the 1986 tax reform.

But the enthusiasm for the effort and the framework that was expressed by editorial writers, intellectuals, and many journalists and tax analysts was not shared by the relevant pols. There was no enthusiasm shown by the Obama White House to engage Camp, leading Pearlstein to lament the loss of a great headline: "David Camp Heads to Camp David." There was no positive response from House or Senate Democrats. And then came the real kicker: Speaker John Boehner, a close ally of Camp's, reacted to his plan at a press conference by saying "Blah, blah, blah." Ouch.

The reaction by Democrats was in part a tribal reaction: If he is for it, we can't be. For many of them, Camp in other venues has been a hard-driving partisan, shutting out Democrats from actions on the committee (in sharp contrast from how Dan Rostenkowski treated Republicans during consideration of tax reform leading up to 1986.) Camp has vied with Darrell Issa in over-the-top partisan actions and rhetoric against the IRS. But even so, this was a serious plan with a lot for Democrats to like.

The other element, I suspect, is that Democrats don't have a lot of interest in tax reform that is revenue neutral. It will inevitably create winners and losers, and some of those losers will be Democratic voters, especially as rate reductions lead to capping or eliminating popular deductions like the state and local tax deduction or the one for mortgage interest. Democrats, including the president, see tax reform as a vehicle to get revenues, as part of a larger bargain to reduce the long-term debt. Embrace revenue-neutral tax reform, and you give up the best vehicle to achieve the greater goal.

For Republicans in Congress, any impulse to embrace or even say good things about the Camp plan was quashed quickly by the GOP monied interests whose oxen were gored by the plan—including hedge-fund billionaires hit by the changes in tax treatment of carried interest (remember, an idea that billionaire Stephen Schwarzman once equated to Hitler invading Poland), and the big banks hit by the Camp idea to tax the "too big to fail" financial institutions that escaped unscathed in the financial meltdown. As Chait details in his column, "Wall Street unleashed a furious campaign to destroy and isolate Camp, canceling all fundraisers for the party until his fellow members agreed to denounce his heresy." Soon, a passel of House Republicans, Camp's friends and neighbors, sent him a letter denouncing his plan, and embracing their version of crony capitalism.

But the problem goes beyond the usual bipartisan dynamic of special interests jerking the chains of their buddies on Capitol Hill. For Republicans in Congress, problem-solving is simply not high on the priority list. Real efforts at problem solving require recognizing that your desire to fulfill your ideological beliefs must fit the tradeoffs and realities of the real world. And it means that ideas—when subject to tests like making the numbers add up without manipulation or rank dishonesty—require adjustments, compromises, and pain for your friends and supporters.

There is a laziness that comes with being in the minority—you don't have to make tough choices; you can simply rail against everything done by the majority. Governing means making tough choices, and it is clear that despite their House majority, congressional Republicans are not ready to do that, either on immigration, tax reform, jobs programs, or health policy. Nor have they been willing to embrace the innovative ideas coming from the conservative intellectual and policy community.

We will see, in coming weeks, if that assertion is wrong across the board. Will Paul Ryan and the House Republicans come up with their own budget this year? And most importantly, will the promise to come up with a real health-reform alternative—meaning not vague principles or a set of talking points, but a real bill, scored by the Congressional Budget Office and subject to strict scrutiny by health policy analysts and the provider community—be met? The early returns are not promising; instead of a bill this spring, we are going to see a "listening tour" around the country. "Listening tour" is politispeak for "We are not serious."