As the 2014 midterm elections approach, speculation is widespread as to whether tax reform can be successfully pursued in 2015. The successful 1986 Tax Reform Act navigated through a politically divided Congress a full generation ago—demanding the very best of our Congress and president, and requiring political leadership, bipartisan cooperation and substantive compromise—the essential hallmarks of the 1986 Act—over a sustained two-year period. Make no mistake about it—nothing short of a determined bipartisan effort and shared commitment will be required again.
At present, the fundamental building blocks for a successful tax reform effort are not in place. Those fundamentals include whether tax reform should be structured comprehensively to include both individual and corporate reform (the “1986 Act model”) or whether corporate tax reform should proceed separately and go first. In addition, a fundamental divide must be resolved between those favoring reform for public C corporations and those favoring more expansive “business” tax reform including sole proprietors and “pass-through” business entities including partnerships, Subchapter S Corporations and limited liability companies. Finally, a fundamental difference of opinion must be bridged between congressional Republicans who favor structuring tax reform to be “revenue neutral” and President Obama and congressional Democrats who favor raising some additional revenues from tax reform to be utilized for deficit reduction. This latter difference extends to the issue of whether “dynamic” scoring or conventional budget scorekeeping conventions should be used to measure the revenue effects of tax reform whatever its underlying structure.
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