By Thomas J. Reese, S.J. As I stand before you this morning, I feel a bit like Rip Van Winkle. The last time I
spoke at a symposium of the National Tax Association/Tax Institute of America was eight
years ago when we paid tribute to Lawrence Woodworth, one of the few saints in the tax
legislative process.\1 Shortly after that symposium, I gave up on the possibility of tax reform. I resigned as
Legislative Director of Taxation with Representation (which shortly thereafter ceased to
exist), shook the dust off my feet, and left Washington. Returning after eight years I find a world as unexpected as that found by Rip Van
Winkle when he awoke after his century of sleep. A conservative Republican President is
presiding over the worst deficits in history. This same Republican President is pushing
for tax reform as his number one domestic priority. The House has passed a tax reform
bill. And the members of the Senate Finance Committee have become born-again tax
reformers. The last change alone is nothing short of miraculous. If Larry Woodworth were up for
canonization in the Catholic Church, the conversion of the Finance Committee to tax reform
would be accepted by the Vatican as a genuine miracle. Anyone with that kind of lobbying
power in heaven has to be a saint. While I am not one to despise miracles, as a political scientist I must look for the
natural causes that have moved Washington closer to tax reform. I would point to three factors that have improved the chances of tax reform: First the
Reagan deficits, second the inflation adjustments in the Reagan tax cuts, and third
improvements in the Congressional budgetary process. First the Reagan deficit. Much has already been written about the tax-cutting fantasies
of Ronald Reagan and other supply-side economists. For six years main-stream economists
have been predicting that economic disaster will result from the huge Reagan deficits. I
leave that argument to the economists. What has not been recognized until now, however, is that the huge Federal deficits are
helping tax reform. There are few things that Congress likes to do more than cut taxes. Since 1970, these
tax cuts have often carried with them large increases in tax expenditures or what
reformers like to call loopholes. Once Congressmen, especially Republicans, lost their
fear of Federal deficits, tax expenditures became the tax equivalent of the free lunch. As
Professor Witte and others have clearly documented, things were getting worse rather than
better.\2 What the Reagan deficits have done is make even Senators accept the view that there is
no more room in the Federal budget for increases in tax expenditures. And if taxes are to
be cut, some tax expenditures must be reduced or eliminated. Besides their size, there was something else that made the Reagan tax cuts unique: the
automatic adjustment of taxes for inflation. This provision caused a fundamental change in
tax politics that its proponents had not anticipated. It has helped tax reform. When inflation adjustments were being considered in 1980 I expressed concern about the
fiscal consequences of adjusting taxes for inflation, but I also noted that if taxes are
"automatically adjusted for inflation, Congress would have no money for increasing
tax expenditures."\3 This prediction has proven correct. By enacting an automatic adjustment for inflation, Congress killed the goose that was
laying the golden eggs that paid for increases in tax expenditures. When increased
revenues caused by inflation were eliminated, the money to pay for increased tax
expenditures disappeared. The third factor that improved the chances of tax reform were changes in the tax
legislative process. When I last spoke before this body, I suggested two changes as a
means of helping tax reform: First, strengthening the Congressional budgetary process, and
second, the adoption of a rule that would permit Congressmen to offer amendments to tax
bills only if the amendments were revenue neutral or revenue gaining.\4
It was clear to me then that if Congress seriously bound itself by revenue targets set
in the Congressional budgetary process, the chances of tax reform would improve. The
Gramm-Rudman-Hollings law has bound Congress as it has never been bound before. In
addition, for the first time in history, U.S. Senators will restrain themselves by only
offering revenue neutral amendments. These changes are important because they force Congress to recognize that the sky is no
longer the limit on tax expenditures. Congress must choose among tax expenditures, and
must chose whether it wants tax expenditures or reductions in tax rates. The procedural
changes have pushed tax politics into a zero sum game. For each winner, there must be
losers. The result is that the Washington tax lobbies are divided and fighting each other
instead of helping each other raid the Federal Treasury. Nothing could be more beautiful
to the eyes of a tax reformer. Since I did not receive a copy of Professor Witte's paper prior to the symposium, I can
not respond to it directly. My comments will therefore have to be in response to his book,
The Politics and Development of the Federal Income Tax.\5 When I wrote my book, The Politics of Taxation, I noted in the
"Bibliographical Essay"\6 that there were less than a
handful of books on the politics of taxation that were worth reading. I am pleased to
welcome Professor Witte's book as an excellent addition to that limited list. His use of
incremental theory to analyze the changes in the income tax system over time is very
enlightening. As a third-generation incrementalist, who traces his lineage through Aaron
Wildavsky to Charles Lindblom, I applaud him. I also think his criticisms of open markups
and open rules are right on target.\7 Unhappily respondents are not allowed to go on and on citing the positive aspects of an
author's work as I could easily do with Professor Witte's book. Respondents are suppose to
point out where they disagree. Let me mention three minor problems I have with his book before I discuss my biggest
complaint. My minor complaints are a bit unfair because they criticize him for what he did
not do rather than for what he did. First, Professor Witte for the most part ignores the increases in Social Security taxes
in his discussions. The ability of Congress to raise these taxes over the last two decades
has been extraordinary. More importantly in terms of his book on the politics of the
income tax, higher Social Security taxes have had tremendous impact on the politics of the
income tax because the two together determine a person's take home pay. Second, in his discussion of Congressional voting on taxes, Professor Witte classified
votes by their being partisan or bipartisan but did not examine the role of the
conservative coalition in tax votes. The conservative coalition, composed of Republicans
and Southern Democrats, has rarely been beaten on a tax vote.\8
In the past, a bit of tax reform was enacted only in 1969 and 1976 when Congress had a
large number of Northern Democrats. Today tax reform depends on a Republican President
convincing Republicans in the coalition that tax reform means lower tax rates. Third, while I find his explanation of the politics of the personal income tax helpful,
his treatment of the politics of the corporate income tax is not as extensive or as
enlightening. The two taxes are usually lumped together in his discussions. He concludes
in Chapter 16, for example, that personal income tax policy closely reflects public
opinion. I agree. But there is no evidence that the corporate tax policy reflects public
opinion. We need a better political explanation of the decline of the corporate income tax
as a revenue source. This is especially true considering the anticorporate bias he reports
from public opinion polls.\9 Finally, I get to my major complaint against Professor Witte's book. In his conclusion
he despairs of the current tax legislative process and recommends that control over tax
policy be turned over to the executive branch or to a board comparable to the Federal
Reserve Board or the Federal Trade Commission.\10 I agree with him that such a change would help tax reform because over time the
executive branch in both Democratic and Republican Administrations has usually been better
on tax reform than Congress. On the other hand, Presidents do make mistakes. President
Ford proposed increasing taxes in the Fall of 1974 just as the country was moving into a
recession. And who can forget the energy tax gimmicks that came from President Carter. And
there are many people who would shudder at the thought of giving President Reagan more
power over taxes. Nor are independent boards politically pure. I have always felt that the
pumping up of the money supply by the Federal Reserve Board prior to the 1972 election was
a greater crime than Watergate. But as a political scientist, the problem I have is that Professor Witte's
recommendations are totally inconsistent with his incremental theory. To take from
Congress its power over taxes and to give it to the executive or to an independent board
is not an incremental change, it is a revolution. It is true that Congress gave up most of
its power over tariffs, but as Professor Witte notes, it took the Great Depression to do
it. Short of a similar catastrophe, I don't see Congress giving up its control over taxes.
It is also clear that today Congress is trying to get back some power over trade. Professor Witte begins his book by saying that comprehensive tax reform is a dream and
he ends by recommending a comprehensive political reform which is no less a dream. He
began his journey through Wilbur Mills's "house of horrors" as an incrementalist
and was so terrified by the experience that he abandoned incrementalism and became a
political revolutionary. The excellent incremental theory in Chapter one is inconsistent
with his recommendations in Chapter 17. In short, Professor Witte should practice as a political scientist what he preaches to
economists. The incremental theory he so wisely applies to economists' proposals for tax
reform should be applied to his political reforms. What is good enough for economists
should be good enough for political scientists.\11 It is not surprising that Professor Witte fell into this trap. People who spend very
long studying the American tax system end up doing one of three things: They either become
revolutionaries, go crazy or make lots of money. I obviously went crazy. So I urge Professor Witte to return to the true faith of incrementalism. Look for
incremental ways to make the Congressional budgetary process work better on taxes. Look
for incremental ways to structure the tax legislative process so that Congressmen are
forced to recognize that tax expenditures are not freebies. Look for incremental ways to
force tax lobbyists to fight each other so that they can be controlled in the way
recommended for controlling factions by the Federalist Papers. But do not give up on
Congress. I admit that these political reforms will not instantly bring about tax reform. They
are incremental changes in the tax legislative process and can only bring about
incremental changes in tax policy. But in politics it is better to work for the possible
rather than to make plans for the impossible. Eight years ago we came here to praise Larry Woodworth. Most praised him for his
contribution to tax policy, but I thought they missed the point. Larry's great
contribution was not to tax reform, nor even to tax policy, his great contribution was to
help preserve the power of Congress over a complex area of American life at a time when
Congress was turning over to the Executive more and more power. As a tax reformer I must confess to a great sin: I love the U.S. Congress more than I
love tax reform. Congressional politics are usually messy, sometimes corrupt, frequently
discouraging and often dumb. But the U.S. Congress is unique in the world as a legislative
body with real power over the details of public policy and this power comes primarily
through its control over taxes and spending. In short, we should not shoot the beast, we
should incrementally improve it. Thomas J. Reese, S.J., is editor of America, a weekly journal
of opinion published by Jesuits in the United States. He is a member of the board of
directors of Tax Notes. Formerly he was Legislative Director of Taxation with
Representation. 1. Thomas J. Reese, "The Politics of Tax Reform," National
Tax Journal 32:2 (September 1979). 2. John F. Witte, The Politics and Development of the
Federal Income Tax (Madison: The University of Wisconsin Press, 1985). 3. Thomas J. Reese, The Politics of Taxation (Westport,
Conn.: Quorum Books, 1980), p. 214. 4. Thomas J. Reese, "The Politics of Tax Reform," National
Tax Journal 32:2 (September 1979), and Thomas J. Reese, The Politics of Taxation
(Westport, Conn.: Quorum Books, 1980), pp. 214-219. 5. John F. Witte, The Politics and Development of the
Federal Income Tax (Madison: The University of Wisconsin Press, 1985). 6. Reese (1980), pp. 223-229. 7. For a similar critique see Reese (1980), pp. 210. 8. Reese (1980), pp. 130-135, 183-185. 9. Witte, p. 342. 10. Witte, p. 382-385. See also John P. Witte, "The
Income Tax Mess: Deviant Process or Institutional Failure?", delivered at the 1985
annual meeting of the American Political Science Association, New Orleans, August 29 to
September 1, 1985. 11. For an economist's reaction of Witte, see Gerard M.
Brannon, "The Politics of Tax Reform," Tax Notes 30:10 (March 10, 1986),
pp. 1005-1007.
Delivered at the Symposium of the National Tax Association-Tax Institute of America,
Arlington, VA, May 19, 1986. Published in National Tax Association Journal 39
(September 1986)
Part I: I Must Be Dreaming
It's a Miracle
Deficits Help Reform
Inflation Adjustment Helps Reform
Improved Congressional Procedures
Part II: A Response to John F. Witte
Minor Problems
Incrementalist Becomes Revolutionary
Conclusion
Endnotes
See also