WASHINGTON — Two former Senate Finance Committee members who played key roles in tax reform in 1986 said any new reform should be comprehensive. Former committee Chairman Bob Packwood, R-Ore., and former Sen. Bill Bradley, D-N.J., made their remarks before the finance committee at a hearing Tuesday on lessons learned from the 1986 Tax Reform Act.
The remarks come as President Obama and some lawmakers have been pushing for corporate tax reform, believing it would be easier to accomplish. Packwood said that doing comprehensive reform in 1986 was critical because revenue from businesses was needed to lower rates for individuals. Bradley said that corporate-only tax reform would not be easy and the committee may have more flexibility if it takes on comprehensive reform. For example, Congress could propose slashing the corporate tax rate and offsetting that by raising taxes on dividends capital gains for individuals, he said.
In 1986, President Ronald Reagan was committed to getting tax reform enacted. Packwood said it's helpful to have the President on board, but it's not necessarily critical. The president can't be against Congress' tax reform plans because members of Congress won't take tough votes if there's a chance a bill may be vetoed.
Bradley said that "presidential leadership is essential" and that if Reagan hadn't backed tax reform, it wouldn't have been enacted in 1986. To accomplish tax reform, there needs to be a president "who is going to put his prestige and clout on the line to drive things through when the inevitable obstacles appear," he said.
Bradley also said that in addition to presidential support, there need to be other key players in order to pass tax-reform legislation.
There needs to be a Treasury Secretary who can speak for the president. There also should be chairmen of the House Ways and Means Committee and the Senate Finance Committee who "want to get this done" and have political interests in doing so, Bradley said.
A tax-reform "zealot" may also be beneficial, Bradley said.
"That's the role I played in 1986," he said. "I did nothing but talk about tax reform for four years."
Additionally, there should be committed, knowledgeable tax-writing committee staff who can cut deals, speak for the chairmen and keep their word, Bradley said.
The bill in 1986 that passed the Senate Finance Committee was negotiated behind closed doors, and many members of the full committee hadn't seen the full bill when they voted on it, Packwood said. He said he thinks that tax reform legislation today would also have to be negotiated behind closed doors. He also suggested that the committee come up with a bill quickly and present their proposal as one bill, so that Congress members don't pick out particular things they don't like.
One of the biggest obstacles to tax reform today is that Republicans want tax reform to be revenue neutral while many Democrats believe some revenues will have to be raised. Packwood said that tax reform should be revenue neutral. Bradley said that there may be a need today for an additional tax, but that's up to the finance committee to figure out.
Packwood and Bradley both said that if Congress can't come to an agreement on the revenue issue, they won't be able to accomplish tax reform.
Tax reform can only be done "if the majority and the minority at the start are on the same page," Packwood said.
Packwood said that while there was less partisanship in 1986, tax reform appeared to be just as difficult to accomplish in the 1980s as it does today.
The top Democrat on the finance committee, Ron Wyden of Oregon, asked if it would be helpful for tax reform to be accomplished through the traditional process in Congress, as opposed to through budget reconciliation, in order to promote bipartisanship. Both Packwood and Bradley said that regular order is preferable. But Packwood said that using reconciliation would give more power to overall congressional leadership and less power to the committees.
In his written testimony, Bradley said that in any tax reform, it would be possible to cap the value of tax preferences for high earners. This suggestion sounds similar to President Obama's proposal to cap the value of the municipal bond tax exemption at 28%. Bradley also suggested that Congress could cut employment taxes and implement a higher gasoline tax or a carbon tax.
Bradley said that infrastructure investment is "desperately needed" and that large foreign governmental funds could be incentivized to invest in infrastructure through a change to the tax code.
