Rebooting the Tax Code: Musings of an ‘86 Act Insider

Rebooting the Tax Code: Musings of an ‘86 Act Insider

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    Victoria Twogood Practice Group Director 612.373.8842

Introduction

The recent Presidential election has brought the prospect of fundamental tax reform into high relief. Although tax reform (fundamental or otherwise) has been a bright star in various people’s skies from time to time, the politics have never been right and the will has never been strong enough. It now appears that the election of Donald Trump could change that dynamic.

With the recent failure of Congress to repeal and replace the Affordable Care Act, the President has signaled the possibility that he would pivot to tax reform. He convened his advisors last week in a well-publicized kickoff meeting.

Greg Jenner focuses on federal tax issues and has 10 years of combined experience at the Treasury Department and on Capitol Hill. This experience provides him with unique and invaluable insights into legislative, tax policy, and budget processes.

We all know that the last (and perhaps only) successful attempt to reform the Internal Revenue Code (“The Code” to tax professionals) occurred in 1986. For various reasons, the stars[1] began to align in early 1984 under President Reagan, culminating almost three years later in the Tax Reform Act of 1986. Since 1986, of course, the Code has become increasingly sclerotic again, as Congress and various administrations have been unable to resist the temptation to provide incentives to various industries and activities. In addition, and perhaps more importantly, the world’s economy has evolved and other countries have lowered their marginal tax rates (particularly for businesses) to a point where ours is now one of the highest. As a consequence, virtually every policymaker would agree that our tax system must be reformed; the only open question is how because the what --“reform”-- resides firmly in the eye of the beholder.

The “how” question has now been answered - preliminarily, at least - with Trump’s election. We use the term “preliminarily” because the voices that likely would oppose all or significant portions of Trump’s campaign plan (or that of the House Republicans) have barely begun to be heard. Those voices, like the ones in 1986, will present formidable obstacles to be overcome.

I was extremely fortunate to have worked directly on the 1986 Act as Tax Counsel to the US Senate Finance Committee. As such, I was more than witness to history – I was an active participant as well as a student of the process. Since then, I’ve done two tours in Treasury’s Office of Tax Policy, the second as Deputy Assistant Secretary and Acting Assistant Secretary for Tax Policy. In other words, for most of the last 30 years I have been living and breathing the tax policy process here in Washington.

There is considerable mystery and misunderstanding about that process. That’s because it’s really nothing like what we learned in high school civics or college political science. There are technical issues – budget rules, revenue estimating conventions – and political dynamics that simply cannot be taught in school. They have to be experienced to be understood completely. It’s not as bad as the old saying about sausage being made but also is not something grasped from a distance.

We at Stoel Rives have been discussing how best we can serve you, our clients, throughout the course of the reform effort (whichever course it might take). We realize that you likely will receive information from many sources describing what has happened. We cannot hope to compete with the various news outlets whose job it is to report events in the tax world. But we think we can give you insights into why things happen and what these developments might mean. In other words, we can connect a lot of the dots that otherwise might appear unconnected, and my experiences here in DC will help us to do that for you.

This is a long way of introducing our new, weekly tax reform newsletter. Our hope and plan is to go beyond what happened in the week just past. Instead, we’ll try to tell you what really happened, how and why it happened, and how what happened will affect the tax reform effort.

All topics will be fair game and we likely will entertain requests from readers to cover certain topics. Before we get there, however, we want to begin by laying some groundwork. For example, we think it is important to compare and contrast how the Tax Reform Act of 1986 really came to be and how the situation then contrasts to circumstances today. We will explain the budget and legislative rules and how they might influence what is done and how. Then, because no game can truly be understood without a scorecard, we’ll talk about the major players and how they might affect the outcome. Finally, we will summarize the proposals currently in play, their strengths and weaknesses, and possible alternatives.[2]

We truly believe that you not only will find these newsletters informative but also fun. Think of them as TMZ for tax nerds. Our hope is to send them out once a week. Circumstances may dictate otherwise. In any and all events, the next few months will be fascinating to watch. As Betty Davis said in All About Eve: “Fasten your seatbelts. It’s going to be a bumpy night!”

 
 
[1] Readers may notice a number of celestial references in this and subsequent articles. They may reflect the author’s curiosity about astronomy, the quasi-mystical nature of fundamental tax reform, or (more prosaically) the extent to which our language is littered with such references (like stars in the sky

 

[2] These are broad “categories” which might be combined or (more likely) split up and covered in multiple editions.

 

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    Victoria Twogood Practice Group Director 612.373.8842
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