The uneasy path to tax reform

Taxes are personal. No one is indifferent to them because they have an immediate and tangible impact. Every person and organization either pays money to the government — or doesn’t — and that makes an impression.

Why, then, is the campaign for tax reform so short on specifics?

Details matter when taxes are involved. In fact, the details are all that matter. Instead, President Trump has been promising middle class tax cuts and a simpler system.

That’s not enough to make a sale.

Comprehensive reform — if that’s what the Republicans in charge come up with — includes tax increases as well as tax cuts. Some set of people or companies will have to pay more to finance lower rates, the legislation’s chief benefit.

Everyone likes lower taxes. That’s easy. The hard part is finding enough votes in Congress to approve higher taxes for some. Neither Trump nor GOP leaders in Congress have done enough spade work to prepare voters for the necessary tax increases they plan to impose.

That’s a big, potential problem.

{mosads}Reform stumbled earlier this year because the Republicans’ proposal was built on an unpalatable tax hike — a border adjustability tax that would have increased the cost of imports. Retailers and others complained loudly and, as a result, the provision was dropped.

In the meantime, diligent reporters have gleaned a few hints about where the money might come from in tax reform’s next iteration. But government officials have yet to confirm or deny the targets.

Trump keeps talking about tax relief. And maybe that’s where the legislation is headed. A straight-up tax reduction would certainly be the course of least resistance, even though it would dangerously widen the budget deficit and make little economic sense.

The best guess is that the plan, when revealed, will be a hybrid of tax reductions with some painful tax increases thrown in.

If so, good luck.

Making predictions in the Trump era is a hazardous undertaking. But if history provides a guide, the White House hope that tax reform will be signed into law by year’s end is a pipe dream. The reason: Taxpayers will demand to know how they will be affected and will rebel over items they dislike.

In 1986, when an earlier tax reform was enacted, the congressional debate was a roller coaster. Various schemes were tried and failed until a consensus was reached. The torturous process took two intensive years. It’s hard to see how the new version will take less time.

Especially since no one knows who the losers in tax reform will be. Some businesses and some individuals will have to pay more for others to pay less — as long as the legislation isn’t merely a simple, straightforward tax cut.

Losers will howl, as they should. Then the legislative process, as imperfect as it is, will take over. That won’t be pretty or fast.

In 1986, political leaders from the president on down had to expend enormous amounts of time and energy to bring reform to fruition. All manner of opponents rose up to protest, including some likely to resurface this time around, such as voters from states with high taxes. The deduction for state and local tax payments could be trimmed or eliminated, according to some accounts, and the states that impose high levies would be harshly impacted.

People with big mortgages will be hurt if the mortgage interest deduction is proscribed in the new proposal. So will some people who use tax-preferred retirement accounts, if those are slated for alteration in reform legislation.

In general, expect conflict over who gets hurt by reform, and don’t doubt that the victims will do everything they can to protect themselves from writing emails to their lawmakers to holding press conferences.

Nothing is wrong or improper about that. In fact, it’s the way a democracy should work. Gauzy, good intentions, even by powerful people like the president, won’t prevent a lengthy and serious debate.

Birnbaum is co-author of “Showdown at Gucci Gulch,” an award-winning book about the Tax Reform Act of 1986, and president of BGR Public Relations, which represents various tax clients.