David Shribman.
Overhauling the American tax code – thousands of pages long, chock full of rates, brackets, credits, deductions, exemptions, exclusions, depreciation tables, reporting requirements and intricate pass-throughs, all rendered in impenetrable language – is a massive undertaking. The process involves lengthy hearings, expensive lobby offensives, emotional citizen entreaties, macroeconomic forecasts, political imperatives and actuarial reckonings. And, of course, ideological considerations.
Then, as if the process were not sufficiently complex already, Republicans had to go and complicate the matter by tossing health insurance, which accounts for one-sixth of the American economy, onto the tax bill. Only the brave or brazen tackle tax overhaul alone. It takes a special audacity to put repealing elements of Obamacare into the mix.
That was enough to push a Wisconsin Republican this week to oppose the bill that President Donald Trump and the GOP leadership wish to pass by Christmas. Now, if tax overhaul is to be salvaged in the Senate, the drafters have to return to their computer consoles and recast the legislation, the gnomes who calibrate the effect on the deficit will have to recalculate their estimates and the armada of special-interest representatives on Washington's K Street lobby corridor will have to reshape their appeals.
It was but the first hitch in the long process of rewriting the American tax code to provide what Mr. Trump says will be "the biggest cut in the history of our country." It will not be the last hitch.
So intricate a process is a comprehensive overhaul of the American tax system that it hasn't been done in a third of a century. That time it took nearly two years and was a bipartisan effort, with a Republican president and a Democratic chairman of the House Ways and Means Committee working together. In this effort, the Trump administration, thirsty for a policy victory before next year's midterm congressional elections, doesn't have that much time – and it doesn't have even a faint breath of bipartisanship to move the process along.
That means the tax writers will face the full fury of lobbyists and public pleaders in a compressed period – a recipe for extreme discomfort in the Senate, which in the best of times has little respect for deadlines and where repeated attempts to kill Obamacare already have died this year. The House Thursday passed its own overhaul plan, cutting $1.4-trillion (U.S.) in taxes in the next decade, but the process requires both chambers to approve the tax legislation and then for a contentious House-Senate conference committee to resolve differences between the measures, especially the gap between the seven tax brackets in the Senate bill and the four in the House version.
Washington may be the setting for continuing spectacles involving partisan fights, philosophical struggles and regional disputes, but all of American domestic politics can be distilled into a debate about taxes – which is why all of those fights, struggles and disputes are at the centre of this episode. The sparring over taxes, moreover, is really a brawl over who pays and who benefits from Washington's actions – the ultimate expression of a government's policies and priorities.
"Tax reform creates winners and losers," said Jeffrey H. Birnbaum, co-author of Showdown at Gucci Gulch, the definitive account of the 1986 tax overhaul and now president of a Washington public-relations firm. "And the losers scream loudly. Taxes are personal and tangible. There isn't a person or organization that doesn't know whether, under these various bills, they will pay more to the federal government or less, and it makes a very big difference to every one of them."
That means that the legislative politics of tax reform is not, at its heart, partisan. It is parochial, regional and industry based. Lawmakers in Louisiana, Texas and California guard tax breaks involving the oil and gas industry. Lawmakers in high-tax states are battling to retain the deductibility of state and local taxes on their federal forms; the fact that Democratic-oriented states such as those in the Northeast, especially New York and New Jersey, benefit the most from this current provision has only buttressed the Republicans' ardour to cap, or eliminate, this deduction.
Meanwhile, furious lobby efforts are underway. Just this week, the Greater Pittsburgh Arts Council, worried that the deductibility of charitable contributions may be in danger, sent out tips for supporters to use to write their lawmakers. (The script: "Charitable giving incentives encourage donors to give more, benefiting the millions of Americans who access services of non-profit organizations, including those in the arts. We need a tax code that will encourage more giving by more citizens.")
The National Association of Realtors, for example, is pressing to continue to allow Americans to deduct interest on home mortgages. Their argument is that this provision – likely to be limited in whatever plan emerges – promotes home ownership. Studies, however, show that home ownership in Canada, which does not permit taxpayers to deduct the interest on their homes, is slightly higher than in the United States.
One of the principal elements Mr. Trump supports is a reduction in corporate taxes, now at 35 per cent (with an average additional 4 per cent from the states, according to the Tax Foundation, a non-profit consultancy friendly to business). This compares to the Canadian federal 15-per-cent rate (plus an average additional 11 per cent from the provinces).
The critique from Democrats, who themselves have supported corporate tax cuts in the past: The Republicans want to provide too many cuts to high-income Americans, and will give small, if any, relief to middle-class taxpayers.
More than four decades ago, Jimmy Carter described the American tax code as "a disgrace to the human race." Many Canadians who do business in the United States today agree.
"The American taxes aren't only incomprehensible to normal human beings but they're also incomprehensible to professionals who are trained in accounting," said Sam Marinucci, a Toronto tax accountant. "We just throw up our hands over here and refer Americans living or doing business here in Canada to tax professionals in the United States. We only have to hope that maybe they can handle it."
David Shribman