To paraphrase Marx and Engels: a specter is haunting the Bush Administration, the specter of a nonexistent popular domestic agenda.
Given the Administration's dramatic failure to push for Social Security reform last year, it would seem that it has shied away from dreaming big dreams when it comes to fashioning a general domestic policy agenda or a specific initiative that might give its domestic policy program some definition.
But there exists an initiative to be pursued that would significantly improve policy while at the same time allowing the Administration and Congressional Republicans to gain popularity with the electorate: tax reform. Talk of tax reform is at its peak at around filing time but in reality, tax reform shouldn't just be talked about during the month of April.
The Bush Administration should seize on the issue of tax reform, draft a package, and push along with Congressional Republicans for approval. In doing so, the Administration and Congressional Republicans will both help their political prospects and can significantly improve the nature of tax policy.
In fact, there are three major reasons why the Administration should pursue tax reform. They involve the three P's -- Politics, Policy and Personnel.
Politics
General frustration with the tax system, along with the belief that our current tax system can be replaced with something more workable, makes tax reform a potent and compelling domestic and legislative goal for the Administration and its Congressional allies to adopt.
The last serious tax reform package to have been adopted occurred 20 years ago during the Reagan Administration. Looking through the Wayback Machine, we find an October 26, 1986 New York Times article in which then-Deputy Treasury Secretary Richard Darman (who later served in the Administration of George Bush the Elder as Director of the Office of Management and Budget) analyzed the fight for tax reform as follows:
"A critical element, Mr. Darman says, was the public's rising alienation from the existing code. ''You knew there was a base out there of antipathy toward the current system, which was potentially a force for reform,'' he said. Second, ''the character of that antipathy toward the current system was partly, not exclusively, populist. This populist antipathy coincided with the election of a Republican President who, like Congressman [Jack] Kemp, demonstrated an ability to appeal to populist sentiment.'' Third, he said, a Republican President's seizing on tax reform - previously a liberal Democratic cause -would insure bipartisan support: In the process, a loose confederation of mostly younger liberal Democrats and populist Republicans would isolate traditional New Deal Democrats, who liked the progressive nature of the existing code but who would face the prospect of losing their partly blue-collar, partly populist constituency. ''In their minds, although not necessarily in reality,'' Mr. Darman said of the conventional Democrats, ''if they didn't do something on this issue, it threatened realignment. They feared that Ronald Reagan, Jack Kemp and the emerging populist wing of the Republican Party could take away a good portion of the 'blue-collar-slash-white-collar' alienated constituency that was traditionally Democrat. That is an incentive for a conventional Democratic politician to want to do something on this issue.''"
"A critical element, Mr. Darman says, was the public's rising alienation from the existing code. ''You knew there was a base out there of antipathy toward the current system, which was potentially a force for reform,'' he said. Second, ''the character of that antipathy toward the current system was partly, not exclusively, populist. This populist antipathy coincided with the election of a Republican President who, like Congressman [Jack] Kemp, demonstrated an ability to appeal to populist sentiment.''
Third, he said, a Republican President's seizing on tax reform - previously a liberal Democratic cause -would insure bipartisan support: In the process, a loose confederation of mostly younger liberal Democrats and populist Republicans would isolate traditional New Deal Democrats, who liked the progressive nature of the existing code but who would face the prospect of losing their partly blue-collar, partly populist constituency.
''In their minds, although not necessarily in reality,'' Mr. Darman said of the conventional Democrats, ''if they didn't do something on this issue, it threatened realignment. They feared that Ronald Reagan, Jack Kemp and the emerging populist wing of the Republican Party could take away a good portion of the 'blue-collar-slash-white-collar' alienated constituency that was traditionally Democrat. That is an incentive for a conventional Democratic politician to want to do something on this issue.''"
Darman's analysis largely continues to hold water. In 2006 as in 1986, there remains a base of antipathy towards the current tax system and that antipathy can be used for reform. Like President Reagan, the current President Bush has a demonstrated ability to appeal to populist sentiments and this ability will help in pushing a tax reform agenda.
Policy
But tax reform shouldn't be pursued just for crass political purposes. It should be pushed because, as a policy matter, the current tax system is in serious need of repair.
I have noted my arguments for tax reform in general and for the adoption of a consumption tax-based system here. To be sure, the consumption tax is not the only serious tax reform option on the table; indeed, the flat tax has much to recommend it. We can, of course, argue the specific merits of the consumption tax versus the flat tax as the debate for tax reform begins. What is clear, however, is that the need for reform is increasing daily. In an earlier column I noted:
"Allowing people to take home the full value of their paychecks will bring about another benefit -- increased worker productivity. This study, done jointly by Professor Edward C. Prescott of the University of Minnesota, and the Federal Reserve Bank of Minneapolis, demonstrates a powerful correlation between low marginal tax rates and high worker productivity. Additionally, the study finds that high marginal rates -- such as those found in European countries, don't even help fund the welfare states of those countries, because they end up reducing labor market participation, thus resulting in a less wealthy citizenry."
In light of reports concerning a general decline in worker productivity driven by a slowdown in the economy, it is important to craft a tax system that keeps marginal rates low. Additionally, a thriving economy will be especially helpful -- along with responsible budget-cutting and a commitment to restrain the size and scope of government -- in battling the growth of the federal budget deficit and national debt.
People
Personnel-wise, the current situation is a sort of perfect storm for the Bush Administration, one that may make it easier to pass a comprehensive tax reform package. The White House Chief of Staff, Josh Bolten, was Director of the Office of Management and Budget prior to taking the Chief of Staff position, and was a Deputy Chief of Staff for Policy before that. The Bush Administration has added a major player to its economic policy team in Hank Paulson, who left a lucrative and influential position as the CEO of Goldman Sachs to become Treasury Secretary. And the Administration now has former Congressman and Trade Representative Rob Portman heading up the Office of Management and Budget.
All three officials are heavyweights, well-versed in economic policy. They also know their way around political obstacles and pitfalls and can deal effectively and credibly with Congress on policy issues. In short, the President has in place a team that is primed to push for the successful enactment of a path-breaking and constructive economic policy package.
Why not use this talent, then? At the very worst, tax reform, even if it fails completely as a policy proposal, will be identified anew with the agenda of the Republican Party, bringing the President and Congressional Republicans short term political gain in advance of the 2006 midterm elections through identification with a popular legislative program. At the most, Congress, in an effort to show that it can get something done -- impelled by the desire to do right by voter sentiments and the need to craft workable tax policy -- will pass either a comprehensive tax reform package or get the ball rolling towards the enactment of one in the near future.
No one maintains that tax reform will be an easy project. But even a tax reform package that is pushed for in good faith but fails to pass will help the Bush Administration and Congressional Republicans politically. A successful tax reform package, one that is crafted to keep marginal rates low and to enhance long term economic performance, can only be a good growth strategy.
