The Senate Finance Committee is determined to take on tax reform, but Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) have chosen a unique way of starting the process: they are asking their colleagues what tax breaks they want, not which ones they want to eliminate. Basically, they are starting from a blank slate and asking lawmakers what they want. The goal was to give Senators the chance to fight for their beloved tax breaks, since few would fight for the removal of favorable tax breaks.
Genu Steuerle of the Tax Policy Center summarized the benefits of the strategy a few weeks ago:
[I]dentifying losers is immensely unpopular among voters, and politicians shy away from it. Worse, they blast those from the other party brave enough to provide details.
But if Baucus sets a revenue target at the beginning of this tax reform exercise, the dynamic shifts—from simply identifying winners and losers to explicit trade-offs. Winners and losers march together. With a blank slate or zero base, every restoration of a tax break requires higher rates (even an alternative tax), especially if there are few or no alternative preferences to sacrifice.
But when the burden of proof changes, a lobbyist can appear to be helping his masters simply by saving a subsidy, even if the net benefit is smaller than in the old law. After all, preserving a preference in some form is success relative to a zero baseline.
So, have other Senators stepped forward to support their favorite tax breaks? Not exactly. Senators don’t really understand the process and are worried that supporting one tax break over another will anger certain interests. So far, submissions have been few and far between. Baucus is still convinced that the process will work and a few Senators are working on legislation supporting different tax breaks, but most are hesitant to join on this method of reform.
This reminded me of a passage from Michael Grunwald’s book on the stimulus where he explained the White House’s strategy of not force feeding legislation down Congress’s mouth. Instead, it tried to give them some autonomy over it in hopes of generating greater support and speedier passage. What the Administration found was that Congressmen were eager for guidance:
The cagey approach helped fuel the myth that Obama punted the Recovery Act to Congress. He never submitted a formal draft, and many Hill Democrats grew frustrated with his team’s refusal to nail down exactly what he wanted and what he needed in the bill.
As one Senate staffer puts it, most legislators are like kids: They say they want freedom, but deep down they crave guidance. So Democrats who had spent years demanding respect from the White House quickly decided that Obama’s team was too deferential. “People were like: Just tell us what the hell you want!” recalls Tom Perriello, a Virginia Democrat who had just been elected to the House.
Baucus and Hatch’s reform process differs from the Stimulus because the Stimulus didn’t create losers, as tax reform undoubtedly will. But, still, the two legislators should keep this in mind as they continue down this road. Legislators like a coherent direction about not just how the process works, but also what the limits are of their power throughout it. Right now, no one knows how many tax breaks they can or should fight for. They don’t know the likelihood of passage or how their support for different tax breaks will affect them politically. Everything is up in the air and many Senators are too scared to take part.
So Baucus and Hatch should be forewarned: starting from a blank slate sounds like a great idea, but like children suddenly confused by having free reign over their day, Senators are equally bewildered by having free reign over legislation.