Daniel Henninger’s article in today’s Wall Street Journal is angry, but it also makes a good point about the opportunity for fiscal reform in the United States. For the short term, it’s looking bad.
And yet, as Henninger points out, we know the recipe for success. Reagan applied it in the Tax Reform Act of 1986.
The ’86 tax act reduced tax rates on personal income and also famously gutted many nonproductive “tax shelters.” In short, simplification. It was also bipartisan. The assault on loopholes—which were often promoted by pre-Reagan Republicans—was led by Chicago Democrat Dan Rostenkowski, chairman of the House Ways and Means Committee.
The 1986 reform is a case of legislative vote-trading that granted something to both sides; a reduction in loopholes for the political left, and a reduction in rates for the political right.
But for those who want to channel Reagan, perhaps it would be more helpful to channel James Buchanan. See, for example, his essay on”Tax Reform as Political Choice.” There are competing interests involved here, and significant reform may require a lot of coalition building and vote trading. But it has been done before.
As we noted in a post yesterday, if the majority of Americans reject the idea of reform, then madmen in authority will have relatively little incentive to act. Or maybe the interests that oppose change can be overcome. Maybe it is possible to strike a grand bargain that gives something to at least some of those who see any reform initiative as a threat.
The issue is not going away. And we will return to Buchanan in the future as we think critically about the prospects for fiscal reform.