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Tax Talks Dominate Capitol Hill

Brad Markel/Liaison
The upcoming 25th anniversary of the Tax Reform Act, which was signed into law by President Ronald Reagan, has sparked a round of reminiscences, forums and white papers among budget analysts and tax wonks around town.

The publication Tax Notes put out a special anniversary issue featuring commentary by leading political players and tax experts who played a role in the 1986 overhaul. The Tax Policy Center, run by the Urban Institute and the Brookings Institution, hosted a panel discussion Wednesday with leading tax experts dubbed "Time to '86 the Tax Code? Prospect for Tax Reform After 25 Years."

For all the chatter, no one expects tax reform to happen overnight. The 1986 overhaul was the product of excruciating negotiations over four years. Reagan had articulated a detailed plan and made reforming the tax code a leading priority, and Republicans and Democrats worked together in a bipartisan atmosphere now absent from Capitol Hill.

"This is one of those [areas] where both parties use the same word to mean completely different things," said Grover Norquist, president of Americans for Tax Reform, founded in 1985 to lobby for Reagan's overhaul. "Democrats want to raise taxes and Republicans don't, but both call it tax reform. That's not consensus."

Norquist has helped solidify GOP anti-tax orthodoxy with his group's widely circulated no-tax pledge. Few on Capitol Hill expect any real tax reform action until 2013, given political polarization and the focus on the 2012 elections.

But even Norquist acknowledged that momentum is building for a reduction in the corporate tax rate, which some argue hurts American companies internationally and even tamps down wages and job creation. Net profits for U.S. companies are taxed at a rate of 35 percent, compared with an average of 25 percent for other Organization for Economic Cooperation and Development nations.

Many of the same arguments that drove the '86 reforms for fairness, simplicity and economic growth are back on the table, said Bruce Thompson, who signed on with Van Scoyoc Associates as a vice president as part of its tax team expansion. Thompson served in the Reagan administration and worked in the trenches on the 1986 reforms.

The firm also brought in Jeff Hamond last month as a vice president specializing in tax and economic issues. The firm has also recently helped pull together two tax-related business coalitions: The Coalition for E85 is lobbying to prevent the tax credit for ethanol fuel from expiring at the end of this year, and the Coalition to Save Tax-Exempt Bonds is working to fend off proposals to limit the tax exemption for municipal bonds.

Such efforts underscore the challenges innate in any tax overhaul. Eliminating loopholes might look good on paper but when specific deductions are on the chopping block, taxpayers can be expected to fight back.

And the broader the overhaul, the more taxpayers involved.

"The one lesson that you can learn from the '86 act is that everyone is in jeopardy," Thompson said.

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