Tax code overhaul tricky

Opinion: September 13, 2011 at 12:00a.m.

Here’s a story to remember when you hear legislators start jabbering this fall about overhauling the tax code: Back in late 1985, Ronald Reagan went to Capitol Hill to lobby House Republicans to back a tax overhaul bill.

Democrat Dan Rostenkowski’s tax overhaul bill.

Many House Republicans opposed it, but Reagan saw the Rostenkowski proposal as the best chance to keep his goal of tax reform alive in his second term. So he stood up and backed the opposing party’s legislation, eventually bringing along enough Republicans to pass it. The shrewd political move got the bill to the Republican Senate, which turned it into a measure both houses could pass and Reagan could sign.

Former Treasury Secretary Jim Baker was a key player in that episode. He reminded me of that story last week over the phone from his Wyoming ranch.

The story is instructive for two reasons: Tax reform won’t happen without strong presidential leadership. And we won’t see America’s daunting tax code simplified unless party leaders are willing to take on their own.

Late to the game

Let’s deal first with the presidential leadership. As with most things deficit-related, President Barack Obama has been late to the game. He has talked about overhauling the tax code, just as he has talked about controlling the deficit. But his actions, at least until July, were minimal.

Yet as the debt-ceiling debate got underway, he seemed to find religion about reining in the deficit and debt. That’s where talk about overhauling the tax code came in. He showed further interest when he and GOP House Speaker John Boehner discussed a “grand bargain” that involved spending cuts and greater tax revenues.

Still, the tax reform part fell apart. Will the president make this an issue this fall?

He certainly has an opportunity. A legislative super-committee will begin this month looking into more ways to get us out of debt. One option is to overhaul the tax code.

Baker explained how Reagan did this through pushing a “revenue neutral” tax overhaul. In other words, it didn’t lead to a net tax increase.

But it did flatten tax rates and eliminate loopholes. Some people and/or businesses may have paid higher taxes; some may have paid lower. In sum, no overall tax hike.

What flattening rates and broadening the base can do is lead to greater economic growth. And that can bring in more revenues to offset a debt now far past $14 trillion.

Naturally, there will be fights over which loopholes go and which one stay.

Baker said they faced big opposition in 1986. Well-paid lobbyists were quick to point out how their clients wanted a simpler code, but, well, please leave this exemption alone.

Reagan faced stiff internal pressure, too. Baker recalls Trent Lott and Dick Cheney coming to his office after real estate exemptions were likely to go away. Both House Republicans at the time, they told Baker they would kill the bill.

Instead of caving, Baker went to Capitol Hill to round up the votes he needed to keep the bill alive.

Lesson for Boehner

That’s a lesson in leadership Boehner should absorb. Instead of fighting his caucus during the debt-ceiling debate — when he was willing to do a grand bargain on spending and taxes with Obama — he backed down. As a result, the House GOP caucus, high on tea party fumes, steamrolled him.

This time, let’s hope he remembers Ronald Reagan. That might seem odd with Reagan an icon to most conservative Republicans. But when given a choice, he bucked his members.

Boehner gets the chance to do that if tax reform gains steam this fall. The economy could benefit from a streamlined code, but we won’t get one unless he fights for it within his own caucus.

Reagan-like leadership is what we need, from the top figures in both parties.

William McKenzie is an editorial columnist for The Dallas Morning News. Distributed by McClatchy-Tribune.