The Tax Anti-Reformers

Thanks to a recommendation by Henry Farrell at Crooked Timber, I've been reading Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century , which tracks the rise and fall of "embedded liberalism" in the U.S. and Sweden. The opening chapter has drawn me into a background discussion of the different ways in which these developments can be analyzed -- in terms of individual economic interests as a microeconomist or rational choice political scientist would do; or by looking at ideas and how the emergence and acceptance of ideas can change the institutions in which political and economic choices are made. (A gross oversimplification of this section of the book, but it makes my point.)

That this interpretive choice is of more than just academic interest should be clear as we attempt to divine the Bush administration's ultimate goal on tax policy. Consider two excellent articles that appeared in the last few days: Jonathan Chait's "Tax Fraud" in the New Republic and Nick Confessore's "Breaking the Code" in the Times Magazine. Both are superb pieces of journalism and analysis, and they start from the same premise: that what Bush calls "tax reform" is something that would be utterly unrecognizable to those who struggled to make the tax code simpler, fairer and less distorting of economic activity from the 1960s through their breakthrough in the 1986 tax reform. Both trace the current "reformers," such as Grover Norquist and Ernest Christian, directly back to the opposition to reform in the Reagan era. In many ways, they are similar articles, although Confessore's is on a larger scale.

But they differ in one important way: Confessore really tries to understand the evolution of the ideas -- if there are any -- that are motivating the current drive to shift the tax burden off investment income and onto labor. Chait views it as a matter of interests: the same corporate lobbyist sleazeballs that opposed reform in the 1980s oppose it now, although they've perhaps draped their interests in a cheap veneer of "theory."

So, which is it? Is the Bush tax plan a story of ideas in politics, of a radical and fairly recent philosophy that, among other things, happens to fit the prejudices of K Street, Tom DeLay and the plutocrats in positions of power? Or is it that some corporate interests have funded a tenuous theoretical underpinning for their own short-sighted economic preferences? The slight difference in emphasis between Confessore and Chait is important to our understanding of how to approach this argument. If the tax "reformers" don't take their theories seriously, why should we?

That said, there is not one answer to this question.
Former White House economic advisor Glenn Hubbard presumably has some sort of theory about taxation, the lobbyist for Exxon-Mobil probably doesn't -- or at any rate, it's not his job to have such theories except to the extent they serve the company's bottom line. If that's the spectrum, where do others fit within it? Bush? Rove? DeLay? Cheney? Norquist?

The Iraq War presented the same question. There were those who were certain that it was all about oil, or all about Halliburton or all about the political benefits of a war, or whatever, and those who tried to take the ideas expressed by Wolfowitz and others as seriously as possible. Two years on, I think it's clear that the ideas expressed to and by Bush -- of an undivided war on "evil," of democratization by force, of remaking the Middle East, of Iraq as a regional model, etc. -- while mostly wrong and all badly implemented -- provide a much more robust explanation for what happened than a calculation of interest.

Is the same true on taxes? My first instinct is that it's less likely. I think Bush gave himself away when he said of Kerry's proposals to roll back the portion of the Bush tax cuts that went to those earning over $200,000: "you know how the rich is: They've got accountants. That means you pay." Unlike Treasury Secretary Donald Regan, cited in Chait's article, Bush is not someone who has any outrage over the complexity of the tax code or any belief that it could be otherwise. He is pure cynicism. And it is not surprising: Bush made his dubious living in an industry -- oil -- that depended entirely on its tax advantages for its economic model. His passive investors in Harken Energy were buying his losses. That was the most significant of all the loopholes closed in 1986. It's also telling that Bush has passed three tax bills and every one has made the code vastly more complex.

On the other hand, the economic interests of the anti-reformers were always there. They were always looking for the same thing. In 1986, they lost. The reformers had a theory about taxes that was persuasive and cohesive. The key moment in the 1986 tax reform came when Republican Senator Bob Packwood, chair of the Finance Committee, decided over a pitcher of beer with a staffer to throw out entirely a bill that had become encrusted with all sorts of special provisions, and start over again with a version that met the theory of simple/fair/efficient. Anti-reformers had power, but they didn't have a theory that could organize their claims and make them seem like something more than self-interest. What's changed is that now they sort of have a theory, however dubious.

Whatever you do, read both articles.