In a sense, this [White House’s corporate tax reform framework] is making two, somewhat contradictory, points simultaneously: Yes, we should reform the corporate tax code. That piece of conventional wisdom is true. But no, it’s not obvious how we should to do it, and it won’t be easy. The mantra “broaden the base and lower the rates” is nice, but a mantra is not actually a plan.
Whether anything comes of this white paper will depend, in no small part, on whether corporations really want a cleaner, simpler tax code, or whether they’re more interested in protecting the breaks, loopholes, and tax arrangements they currently have. They are, after all, the primary constituents of this change, they are sophisticated about tax policy and how it affects them, and they are very politically powerful. So they will have ample opportunity to weigh in.
But all of this just goes to show how insanely difficult individual tax reform will be. For one thing, no one can decide on what “revenue neutral” means because the looming expiration of the Bush tax cuts has put at least three plausible definitions on the table: “Revenue neutral” is tax reform assuming their full expiration, tax reform assuming the expiration of only the high-income tax cuts, or tax reform assuming the extension of all the tax cuts. Nothing can be done — nothing at all — until that question is settled, and as of yet, the two parties are nowhere near settling it.
If some agreement is reached on the level of taxes — and that’s a big if — we’ll find ourselves facing the same point the administration is making with corporate tax reform: to get rates much lower, you have to go after the big stuff. The mortgage-interest deduction. The exclusion for employer-provided health insurance. The exclusion of pension contributions and earnings. The deduction for state and local property taxes. Those sorts of things (see the 10 largest tax expenditures here). And that won’t be easy. Unlike in corporate tax reform, where the big players have departments of tax lawyers to advise them on what to do, individual tax reform has a much more diffuse and uninformed constituency, while those who could be hurt by it will, as per usual, quickly figure out where their interests lie.