Why the Bright New Congressmen Couldn't eliver on Tax Reform
Balz, Daniel J.
Why the Bright New Congressmen Could~Dt eliver onax Reform by Daniel J. Balz Few of the freshman Democrats who caused such a stir with their procedural reforms at the start of the 94th Congress...
...When Green and Mikva prepared to abandon the fight, Gibbons persisted...
...It was left to the new group to create sometliing different, but it soon became apparent that youth and enthusiasm did not necessarily bring about tax reform, nor did it guarantee that people who had unanimously favored some thing vaguely dubbed “reform” would still agree when it came down to the details of rewriting the tax code...
...At times it seemed that their only standard for evaluating a proposal was almost strictly on the basis of how much revenue it would bring in...
...There are dozens of similar fiddles, most of them (like the mortgage-inter-est deduction) giving greater benefit to those with the larger incomes...
...Suddenly there was a Ways and Means be forced to give up gallery to play to, which affected in many of its powers...
...Then the staff There were two main challenges to members had to be more discreet, Mills’ power the following year, and more gentle in their criticism of the both showed how vulnerable he and representatives’ proposals...
...He responded not as an invincipreted...
...For several years, such committee Democrats as Sam Gibbons, Bill Green, James Corman, and Joseph Karth had been lonely voices on behalf of tax reform...
...Al Ullman of Oregon, who succeeded Mills as Ways and Means chairman, wanted to steer clear of the question while considering the tax reduction act, the first major bill the committee took up...
...They talked to me as if I hadn’t even heard of DISC,” he said later...
...The Collapse of Mills’ Consensus A bit of history may be in order, for it shows how the new Ways and Means Committee actually began to take shape in early 1973, long before the Tidal Basin incident that led to Mills’ departure as chairman...
...Most pure reformers say that only by ending these preferences, and then lowering the overall tax rate, will the system ever be made simpler and more fair...
...The committee’s Democrats were stripped of their power to appoint Democrats to other committees...
...The twin crises of recession and energy concentrated much of the important action by Congress in the Ways and Means Committee...
...The bill produced by the House Ways and Means Committee did little to simplify what is already a tax code that is too complex...
...They lost the ability to set an overall goal of producing simple and good tax provisions...
...Simon has no abiding interest in taxes, and despite occasional speeches about purifying the tax code, rarely lobbies for anything other than corporate tax breaks...
...Nowhere does this seem more obvious than in the House Ways and Means Committee...
...This seemed an obvious step to reformers, but the results have been ambiguous...
...But the reformers carried it beyond 30 what is necessary...
...The Ways and Means Committee was an easy target as long as Wilbur Mills was chairman...
...The Treasury Department’s role was further damaged by the appointment of William Simon as Treasury Secretary...
...The full House voted to kill depletion, and Ullman agreed to fight for it in conference...
...But for the first few months of 1975, everything did look different...
...the committee set aside the bill in mid-year and never returned to it...
...Gibbons was not only surprised at the power of the counterattack, he was wounded as well...
...substantial was the work of the House The open sessions had two other Select Committee on Committees, effects...
...But even here, the lines between right and wrong, fair and unfair, are blurred, as the new Ways and Means Committee discovered last year...
...Woodworth was more than just a staff man...
...The chief target was DISC (Domestic International Sales Corporation), which allows a U. S. firm to defer taxes indefinitely on a part of its export earnings...
...For the past three years this has meant an attack in Congress on the oil depletion allowance, foreign tax breaks enjoyed by corporations, and tax shelters in such industries as real estate, oil, agriculture, and motion pictures...
...The best example is that great middle-class tax loophole, the mortgage-interest deduction...
...Daniel J. Ba2z is a reporter for the National Journal...
...Nothing Simple About Reform The reform proponents were plagued with another weakness in their approach...
...The hearings led to nothing that year...
...When he was deposed, propo-nents of tax reform rejoiced...
...Today we know better...
...They have discovered, to their chagrin, that institutional reforms do not necessarily produce the substance of reform legislation...
...The liberal bloc came out with a victory...
...In the spring of 1973, Ways and Means began a prolonged series of hearings on tax reform...
...There is no obvious, irresistible current of public sentiment for real reform of the tax code...
...Virtually no one bothers to differentiate between incentives which actually change behavior-inspire business to create more jobs, open more factories, build more homes-and those which simply reward people for doing what they were planning to do all along...
...The remaining problems were too messy...
...If one proposal raised $1 billion and another raised $800 million, the $1-billion proposal was better...
...After another year of disappointments, one lesson may be that it’s time for tax reformers to stop thinking of themselves as lumberjacks...
...Their power has never been the same...
...When the sessions were opened, Mills felt obliged to remove the Treasury from the staff table and relegate them to the status of special observers...
...Their job is considerably more difficult...
...But DISC supporters say it has created jobs-230,000 by the Treasury’s estimateand has stimulated exports$4.6 billion worth in 1973...
...In fact, the changes ratified the deterioration that had already occurred...
...And the size of the committee was enlarged, from 25 to 37 members, to bring in a corps of new Democrats, all with the purpose of changing the tax laws...
...the villains not so evil...
...They got plant managers throughout the country to contact their representatives to warn that the repeal of DISC would eliminate jobs in their district...
...As long as the ses- fore no longer sacrosanct...
...At just the same time, institutional changes in the House were beginning to affect the committee’s operations, although the outward appearance was of a committee as strong and resistant to change as ever...
...The new openness of Ways and Means may, eventually, work in favor of tax reform...
...This is hardly a new problem: John Kennedy’s investment tax credit, designed to expand capital investment, ended up paying businessmen for a good many outlays they would have made anyway...
...It was simple to explain away the lack of a tax reform bill by calling Mills the most powerful pnn in Congress in one breath and a protector of special interests in the other...
...For there is enough money going through the loopholes into the pockets of the middle class to make a true overhaul of the system very difficult...
...People may want to see the fat cats’ wings clipped, but not if that clipping includes the removal of the deduction for home-mortgage interest...
...The Library of Congress estimates that in 1977 DISC will cost the government $1.4 billion in lost revenues, which to Gibbons was nothing but a giveaway...
...The relationship between Woodworth and Mills was as important as that between Mills and John Byrnes...
...The press hailed the changes as the beginning of a new era on Ways and Means...
...Mills, personally a broken man by now, gave up his chairmanship before he was dethroned...
...Democrats on the Ways and Means Committee first recommended a tough 40-cent-a-gallon gasoline tax...
...But when the bill went to the House floor, the 20-cent standby tax was overwhelmingly defeated by a vote of 345 to 72,- and the three-cent tax was stripped out of the bill by a vote of 209 to 187...
...sions were closed, Treasury had enjoyed nearly as much prestige as did the Joint Committee staff...
...Ways and Means finally took up tax reform after Labor Day...
...the assistant secretary of the Treasury for taxation was a power in his own right...
...The reaction to Jimmy Carter’s campaign proposal to review that and other deductions tells all politicians to stay away from the tough choices...
...By limiting artificial losses to the income generated by the shelter investment, the committee reduced the incentive for doctors and lawyers and the like to put their money into such things as cattle breeding or oil and gas drilling...
...He feared that the complication could destroy the entire bill...
...The from Rep...
...all told, they will come to about $100 billion in 1977...
...Lawyers don’t make hundreds of thousands of dollars a year because the tax code is easy to understand...
...The wave of reform that came after the 1974 election struck hardest at Ways and Means...
...What is clear now is that the process of reforming the tax code is no simple matter...
...Lobbyists could apply remedi- ble monarch but as a frightened tya1 pressure to members who went rant...
...It should prompt a more intelligent debate, a more thorough airing of the consequences of both the status quo and the alternatives...
...The Wall Street Journal took special note of this group’s potency in a front-page piece in the spring of 1975...
...With so many of these ingrained exemptions off limits, tax reform has chiefly come to mean going after corporate tax breaks and the most flagrant individual abuses...
...The most important change in 1973 was the requirement that House committees mark up bills in public sessions, unless a vote were taken to close the sessions...
...Publicly they stuck to the House version...
...The most to act more like a staff...
...Few people recognized then how impor26 tant Byrnes’had been to Mills, how much Mills had drawn his power through Byrnes...
...the process of passing sensible tax legislation will be more subtle, requiring greater public debate, than the liberal reformers have imp lied...
...Herman Schneebeli of Pennsylvania, who succeeded Byrnes as ranking Republican, had neither Byrnes’ technical aptitude nor his relationship with Mills...
...One was to eliminate abuses afforded wealthy investors through the use of tax shelters...
...But it didn’t happen that way...
...Sam Gibbons, the purest tax reformer on the committee, had set out long before to kill DISC...
...show of power infuriated even more Second, the open sessions helped members of the House...
...What’s Liberal The erosion of the liberal bloc began to show up when Ways and Means took up the energy bill in the spring of 1975...
...The proponents of reform had two goals...
...Mills had gone national the year before in an abortive bid for the presidency...
...Because they were Democrats and tended to be liberal, they became known as the liberal bloc, and this liberal bloc was recognized as the force for reform in the House...
...But those were only tentative decisions under the strategy adopted by the cautious Ullman, an approach he had chosen to be fair to all sides, but one that later worked to cripple the committee bill...
...But Gibbons, Green, and Mikva went after depletion early, despite the entreaties not only of Ullman but also of the AFGCIO...
...The logjam was broken...
...While depletion was the liberal 28 bloc’s one great victory of the year, it proved a poor test of their power...
...Without that, turnover is the only thing rewarded, not creation of new housing...
...The other was to eliminate foreign tax breaks enjoyed by U. S. corporations...
...It was a slow but riskless process, and it gave Mills the appearance of invincibility...
...Members com- cus rule to try to repeal the oil plained that they felt constrained to depletion allowance...
...Still the lesson has not been learned...
...He demonreduce the role of the Treasury De- strated that Ways and Means had partment to that of the loyal opposi- become much the same as the other tion, instead of an often-active force committees in the House, and therefor tax reforms...
...The larger committee contained new, young Democrats who favored more reforms plus veteran Abner Mikva of Illinois, who became part of the core of the new liberal bloc...
...A few words inserted in the proper spot can save a corporation millions of dollars a year...
...Two years ago Wilbur Mills and the Ways and Means Committee had come to symbolize all that was wrong with the old Congress -rigid, obstructionist, conservative, arrogant...
...These preferences that remove income from the taxable category can be thought of as “tax expenditures...
...But our system does, thereby giving every middle-class homeowner a stake in inequity...
...The reformers also suffer from an inability to distinguish between the different sorts of tax incentives...
...Among the Democrats who voted against repeal were Joe Karth and Bill Green...
...By early 1973 Ways and Means had grown fat and arrogant...
...They considered their proposal the liberal approach to energy conservation...
...In a year of record unemployment, anything related to that magical word “jobs” has special appeal to members of Congress, and the business lobby knew it...
...they scattered when confronted with a gasoline tax...
...First they created a new rela- chaired by Richard Bolling, which tionship between the members and proposed in December 1973 that the public...
...Working behind the scenes, in closed sessions, he could help Mills steer the committee’s work...
...When Gibbons offered his motion to repeal DISC, only six other Democrats joined him...
...They mounted a massive and sophisticated attack...
...In many cases, that yardstick made sense, especially in proposals designed to tighten tax shelters...
...Many bits of evidence created the impression that a powerful liberal bloc now dominated the committee...
...To most reformers, anything that helps business is bad, whether (like the capital gains provision) it is purely a turnover-reward, or whether it actually expands capacity and production...
...House liberals rallied to attack the oil companies...
...Byrnes could hold his Republicans on the committee in check, allowing Mills to search patiently for his famous consensus...
...But the road will be longer and more difficult than the rhetoric of late 1974 led people to believe...
...But politicians have learned to keep a healthy distance away from that kind of “reform...
...The committee’s first steps to eliminate tax shelters were good (if somewhat complicated to describe...
...The liberals on the committee were stunned...
...Eighteen months ago the revitalized committee seemed to symbolize much of what was going to be right about the new Congressyoung, open, public-spirited, enthusiastic...
...Bill Green, the committee’s open sessions also gave corporate lob- enfant terrible, who used a new caubyists greater leverage...
...That changed when the drafting sessions were opened to the public...
...His legislative tricks and brazen against them...
...With the mortgage-interest deduction, Congress neglected to stipulate that only new homes should be eligible...
...Writing a tax bill is an immensely complicated procedure...
...Why the Bright New Congressmen Could~Dt eliver onax Reform by Daniel J. Balz Few of the freshman Democrats who caused such a stir with their procedural reforms at the start of the 94th Congress are running for reelection on the record of that Congress...
...They had his committee had become...
...A second and small ways the approach some mem- more inflammatory challenge came bers took in considering a bill...
...Both challenges ask particular kinds of questions, for had Mills on the run in the first half of fear their positions would be misinter- 1974...
...Reform legislation would flow through this new and open committee in a swift, powerful surge...
...Although tax reform could mean many thing, in Congress it had been reduced to one overriding issue: repeal of the oil depletion allowance...
...A poorly drafted provision can create loopholes or hardships never intended...
...Its mem- me 66LiberdBloc3y bers shared the same staff table...
...This was eventually modified by the full committee to three cents a gallon, with a standby provision for an additonal 20 cents if U. S. gasoline consump tion rose above 1973 levels...
...Mills and Byrnes understood one another, worked closely on everything...
...Since Byrnes’ retirement, the Republicans have no longer felt obliged to be the makeweight in a committee coalition, and the process of writing tax legislation has suffered...
...His back ailment and his drinking had begun to limit his effectiveness, and the committee then was ripe for change...
...Yet privately some reformers searched their souls about charges that the Treasury-House approach to curbing the use of tax shelters would hurt both housing and energy production...
...There were few other symbolic tax reform issues with the same power to tie liberals a together...
...Unfortunately, this, too, perpetuated the myth that tax reform is a liberal-conservative issue, for it was the liberal northern Democrats, who had no big oil companies in their areas, who favored killing depletion and the southern Democrats and conservative protectors of big business who wanted it to continue...
...To make sure that few of these provisions ever got into the tax code, the Ways and Means (and Senate Finance) Committee‘ had come to depend on the technical expertise of the Joint Committee on Internal Revenue Taxation and its director, Laurence N. Woodworth...
...No equitable tax system should discriminate between renters and homeowners in the treatment of income...
...But they learned that other liberal Democrats saw the proposal as a penalty to the poor and as a violation of 1974 campaign promises...
...One can argue that Mills’ reign ended when John Byrnes, the ranking Republican on the committee, announced his retirement at the end of 1972...
...One reason is that even the reformers have limited the debate to cut-andpaste proposals, ignoring fundamental inequities in the tax code...
Vol. 8 • July 1976 • No. 5
