Tax reform, really?

On November 1, the President's Advisory Panel on Tax Reform presented its recommendations to Treasury Secretary John Snow, who called the panel's report a "starting point." The options are now being evaluated by the Treasury with a view toward developing policy recommendations for the White House which, eventually, will present its own recommendations to Congress. Apart from the public ceremony at which the panel's report was submitted to Secretary Snow, tax reform has gone moribund.

At one level, going quiet could be interpreted positively. With the Advisory Panel report and data to consider, the Treasury Department's analysis should arguably be conducted outside of the public spotlight. There are also other challenges thrust upon Treasury, including the tax repercussions of Hurricanes Rita and Katrina, budget reconciliation, and a host of expiring provisions (including AMT relief). In this context, rolling up your sleeves and getting your hands dirty in the difficult stuff of tax reform do not have to be on the front page.

On several other levels, however, the signs suggest that tax reform may not have a prominent place on the tax policy agenda. First, the Treasury Department has been playing shorthanded for a long time. The absence of a full complement of tax policy officials has placed an inordinate burden on Eric Solomon, the current Deputy Assistant Secretary (Regulatory Affairs) and Acting Assistant Secretary (Tax Policy), and his colleagues in the Office of Tax Policy. To be sure, Eric and his confreres have performed superbly, but tax reform is going to be a full-time effort requiring a complete team. (The best utility infielders in the word can't win you games, even if they're hitting .400, they need both good pitcher and a manager who can marry the strategic to the tactical.) The appointments of Hal Hicks (International Tax Counsel), Michael Desmond (Tax Legislative Counsel), and Robert Dilworth (Senior Advisor) are welcome, but the absence of team caption raises significant concern. That's why many folks are urging the Administration to nominate Solomon himself or another tax policy expert to the top post so he (or she) can round out the tax policy team.

Second, there is no discernible timetable for tax reform. If tax reform is to be a central component of the Administration's domestic policy agenda in 2006, the Administration should say so, ideally setting out a timetable for the development of policy options and legislative proposals. Of course, deadlines and delivery dates can and do shift depending on unforeseen events and intervening priorities. But the announcement of a timeline would foster public awareness and accountability. Many commentators are urging such a course of action on President Bush, suggesting that the State of the Union address would be the ideal place for that announcement.

Third, there currently is no broad-based commitment to tax reform. Key players on both ends of Pennsylvania Avenue and from both parties have not endorsed tax reform, but indeed have taken pains to distance themselves from the Advisory Panel's recommendations. For one thing, the congressional leadership has been more focused on incremental tax fixes and patches rather than comprehensive, fundamental tax reform. For another, the President has said precious little on what he believes a "reformed" Tax Code should look like, and hence, little effort has been expended to mobilize key constituencies (such as particular industries) to embrace tax reform. Advisory panels serve an important function and there is no minimizing past or present efforts. Absent a clear articulation of the President's position, however, tax reform has little chance of advancing. Again, the State of the Union address would be the logical place for the President to "spend some of his political capital."

Fourth, election years are difficult time frames to do controversial things legislatively. While certainly not impossible (consider, for example, the Tax Reform Act of 1986), it seems risky if not foolhardy to embark on a tax reform crusade in an election year. The risk of reform efforts being undermined by election-year, "don't-force-me-to-cast-difficult-votes-that-could-sway-a-close-race-back -home" resistance seems all too apparent this year. Tax reform advanced half-heartedly is really no tax reform at all.

Of course, the commentators and wags could all be surprised: The new year may bring a torrent of key appointments, a renewal of the boldness that drove the first term of the Bush Administration, or perhaps a healthy dose of bi-partisan collegiality. The various and sundry players could surprise us all by recognizing that the needs of the many outweigh the wants of the few and that the time has come to take decisive action. Let's wait and see--and hope.

In the meantime, all my best to you and your families for a warm, joyous, and safe Holiday season and a Happy New Year.