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The Right Kind of Tax Reform

Count me among those who think one obvious response to the IRS scandal is tax reform. The IRS and its few defenders have, even if inadvertently, made the case for simplifying the tax code and scaling down the IRS’s reach and powers just as well as the agency’s critics have (though critics of the taxman, unsurprisingly, outnumber defenders).

The revelations that the IRS targeted conservative organizations specifically and groups that seemed to disagree with President Obama generally have been in the public square for the better part of two months now, and we have two explanations for the abuse of power. Either the influential higher-ups at the agency were deliberately seeking to silence conservatives, or the agency’s bungling bureaucrats were too confused and overwhelmed to do their jobs properly. In neither scenario does the agency justify retaining the power it currently wields.

Part of this is a problem with campaign finance reform efforts, which result in limiting political speech and in some cases tasking the IRS with those responsibilities. But the IRS is either corrupt or irredeemably incompetent. Surely this argument can be made about much of the federal government, though the IRS is in the news now and has a rare slice of the public’s attention. As such, this would be a good moment to push for tax reform. But this, which the AP reported yesterday, does not seem like the best way to go about it:

The top Democrat and Republican on the Senate’s tax writing committee said Thursday they’re starting with a “blank slate” approach to tax reform that envisions stripping the code of every single tax break as a setup to a debate over which ones to add back in.

But wouldn’t that just lead to a massive lobbying frenzy which would eventually result in insignificant tax breaks disappearing but the bulk of them right back in the tax code? Indeed, as the Hill reports:

Senators only have until July 26 to get back to Baucus and Hatch, giving K Street shops little time to formulate their strategy for what one lobbyist dubbed the Full Employment for Tax Lobbyists Act of 2013.

A separate lobbyist said the wide-open debate could result in something resembling a food fight, as various groups sparred and jockeyed for position, hunting for lawmakers to make the case for them.

“You’re going up against the entire world,” the lobbyist said. “There will be a ton of money spent on this.”…

Backers of the most popular big-ticket tax breaks – like the mortgage interest deduction and the exclusion for employee-sponsored health insurance – could be on safer ground, according to some on K Street.

The Hill offers what is intended to be good news, sort of: some of the tax breaks will be in trouble because their supporters don’t want to go on record defending them. But isn’t that just another way of saying that the tax code is even more in need of reform than the public knows? Anything resembling a lobbyist bidding war on tax breaks won’t exactly inspire confidence among the public looking for a leaner and cleaner government.

Additionally, I don’t think anyone believes that the final version would stay that way–that exemptions of all sorts wouldn’t creep in again when no one is paying much attention. That is one of the major weaknesses of centering tax reform on the strength of lobbying. We’ll end up, most likely, with a very similar tax code to what we have now and set it on the road to eventually be identical to what we have now, the major difference being along the way we’ll have a period of adjustment and uncertainty that the IRS is manifestly unprepared to navigate.

But the fact that we’re even talking about major tax reform is at least a start. Government agencies that prove themselves too big to succeed should be scaled down, and tax agencies should not have the power to bar their critics from equal participation in the political process. Though those two points may seem obvious (or at least they should), the current size of the federal government and the scandals it’s experiencing prove commonsense governance cannot be taken for granted.



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