Showdown at Gucci Gulch

Tax reform is well underway in Washington. The House passed its plan last week, and the Senate aims to vote on another version after Thanksgiving.

Comprehensive reform last succeeded in 1986, following five years of gruelling work. In more conventional times, I would argue the hurried legislative process seen this time around would render any tax bill dead on arrival. But Republicans find themselves in desperate circumstances. Stakes are especially high, because they need a policy victory to justify sustained dual control in Congress and the White House. So far, the cozy setup has yet to yield any major successes.

Now that Congress is aiming to pull off an historic achievement in only a matter of months, it just felt right to dust off an old book I’ve been saving for just such an occasion.

Showdown at Gucci Gulch should be required reading for anyone in Congress or the Trump Administration. Fair warning: it’s a bit dense. The book’s two Wall Street Journal authors chronicle legislative proceedings from 1981 – 1986 in exhilarating (or excruciating, depending on who you are) detail. If that doesn’t appeal to you, it’s probably confirmation that you’re normal. But thirty years on, the book still holds worthwhile insights into the competing interests that frequently stymie Congress.

The themes of the book that strike me are: Tax reform is tough, and the results will inevitably be imperfect. But the efforts stand to strengthen the spirit of our democracy and improve the economy in the process.

Below is a brief commentary on four select topics of tax reform with excerpts from the book to help illustrate.

Fundamentals first

One of the most important reasons for tax reform is to reduce societal resentment and cynicism about government – Richard Darman, Deputy Treasury Secretary, April 1985 (p. 271)

The idea of tax reform is unique to America. Most nations wouldn’t consider thoughtful deliberation and reconstruction of taxation a worthwhile cause or one that serves their interests. (Birnbaum, Murray p. 288)

In part, this dissatisfaction with the tax system had its roots in the inflation of the 1970s: As wages and salaries rose to keep pace with prices, middle-income Americans found themselves pushed into higher and higher tax brackets, even though their new, inflated incomes bought no more at the grocery store than their old ones did. But mostly, the dissatisfaction reflected a recognition of the proliferation of tax breaks. (Birnbaum, Murray, p. 9)

The momentum behind these quotes is what drove reform in the 1980s. Leading up to this period, holding elected office had translated, in part, to carving out as many tax loopholes for constituents as possible in order to earn their votes. In this way, there wasn’t much difference between Republicans and Democrats. But the special treatment of some had left others feeling forgotten. President Reagan gave voice to this angst, sparking a wave of tax reform sentiment that forced Congress to capitulate.

Next stop: the Senate

Sometimes the Senate’s a little like Jazz. You can’t predict what’s going to happen –Senator Bill Bradley (D-NJ), p. 235

As the Senate prepares to consider tax legislation after the Thanksgiving holiday, the Upper Chamber faces several unknowns.

The first is the votes themselves – Republican Senators Collins, Johnson, Murkowski, Flake, McCain, Corker, and Lankford have all registered hesitations in one form or another and for varying reasons. Most of these will ultimately find it more palatable to vote for an imperfect bill than to be viewed as obstacles to reducing tax rates, which is a striking shift in political sentiment since December 1985 when the House got the ball rolling on reform.

Second, the manner in which the Senate will pass its tax bill – under “budget reconciliation” rules – is a mixed bag for Republicans and another example of how political culture has changed in three decades. In practical terms, it means Majority Leader Mitch McConnell and his leadership team only need to secure 50 votes to get the bill through (rather than 60…and the topic of a future post), assuming the Vice President will cast the tie-breaker. More importantly, it reveals that Republicans are not interested in working with Democrats to write tax plan palatable to anyone in the minority.

On a practical level, budget reconciliation reduces the vote threshold needed to pass the bill, but it could spell trouble in other ways. The process also (1) caps the cost of the bill over a ten-year window, (2) allows unlimited amendments, and (3) restricts debate to only twenty hours. Each comes with its own challenges, but the last point could really irk Senators who understand the importance of the Senate’s unofficial title as the world’s greatest deliberative body. I wouldn’t be surprised to see a delayed vote as leadership tries to iron out inner-party quibbles.

From a strategic standpoint, the implications of using budget reconciliation for such an important bill goes beyond tax legislation. Republicans roll the dice when they strong-arm the minority party by pushing through legislation that circumvents regular order. Sure they’ve been on the receiving end of many procedural abuses through the years, but the only way to end the cycle is to not reciprocate when given the opportunity. Sooner or later, Democrats will regain power in Washington, and Republicans shouldn’t expect any favors.

Both parties should proceed with caution; bending the rules to exclude the minority en bloc from deliberations threatens to undermine the Upper Chamber’s primary purpose, which is to give voice to minority factions. Congress simply doesn’t need two majority-rule bodies.

Conference committees

Disagreements between the two [House and Senate] are common. It is because of those disagreements that many of the nation’s laws are ultimately written in one of the most unusual, most difficult, and least understood institutions of American government: the conference committee.

Legislative conferences have their origins in fourteenth-century England and were also used by some of the colonial legislatures before Congress was created. They came of age in the United States in the mid-1800s, when the Senate and House grew increasingly antagonistic. 

A conference committee is not provided for by the Constitution and is little understood by the public, but it is there that final decisions are made about who bears the tax burden. In often cramped and stuffy rooms, away from the gaze of the public, unpredictable events occur and tax laws are written. (Birnbaum, Murray, p. 254)

Regardless of what the Senate passes, it will inevitably not match the House-passed version. To reconcile differences, Congress creates “conference committees” where a select number of House and Senate Members are quietly given extraordinary liberties to determine the ultimate fate of bills already passed by the House and Senate. Of course, decisions are expected to be made in good faith and relegated to issues where the two bodies diverge. But it’s normal for decisions to go beyond those specific points and into areas not otherwise assumed to be in play.

This is understandably a point of frustration. Oddly enough, it appears to be a relief for some Members who justified their votes for an imperfect bill by assuming that their disagreements will be ironed out without them in conference committee after the legislation passes. To some extent, this could be viewed as a welcomed alternative to derailing an entire bill because it violated one Member’s principles. But it’s really more of a pass the buck routine; certainly less Jimmy Stewart, more Pontius Pilot.

Perfect is the enemy of good

That’s just the way it goes. You cannot be an idealist and have tax reform enacted at the same time – Roger Mentz, Assistant Treasury Secretary for Tax Policy, p. 263

Downey compared tax reform to an impressionist painting: “The further away from it you go, the clearer it gets. The closer you get, the more it looks flawed.” (Birnbaum, Murray, p. 109)

We know that whatever bill is sent to the President will be imperfect. Such is the outcome of a democracy, and I’m thankful for it. Will it be everything I wanted? No. But when my views are some day represented by the minority party in Congress, my hope is that the downside won’t be quite as ugly.

To be clear, “perfect is the enemy of good” isn’t the view I hold on all legislation. It’s easily misused to coerce Members to support bad policy. At times, principle should not have to succumb to compromise. But what’s paramount is the ability to discern which issues qualify for compromise and which ones merit a principled stand. Constituencies would do well to vet candidates through this lens and elect those who demonstrate it in spades.