By Peter Cary, Allan Holmes and Pratheek Rebala
There’s no shortage of agenda items for the new Congress that’s just been seated in Washington. But lost among the anguished cries to reopen the government and enact ethics reform will be a lesser-advertised but crucial item: addressing major problems in the 2017 tax bill that President Donald Trump signed into law a year ago.
That the law needs fixing is not in dispute. Why it needs fixing is most vividly illuminated by contrasting it with another massive piece of tax legislation, the Reagan-era Tax Reform Act of 1986.
The Reagan-era bill was crafted with lengthy deliberation through its entire process. The 2017 tax act was drafted in such haste that there was no substantive deliberation on its contents, resulting in confusing language and numerous errors that need to be fixed. But newly-empowered Democrats are unlikely to help Republicans repair their faulty bill, with the result that it may generate even more than the $1.5 trillion ten-year deficit it was designed to create.
In the months leading up to passage of the 2017 tax act, Trump administration officials and Republican leaders in Congress giddily compared the scope of their bill to Reagan-era law. House Ways and Means Committee Chairman Kevin Brady (R-Texas) called their new bill, “The first action in 31 years since President Reagan’s reforms in 1986.” Then-National Economic Director Gary Cohn said the legislation represented the “most significant tax reform legislation since 1986.”
Measured by the magnitude of changes to the tax code, that is true. But in terms of how the bills were developed, deliberated and drafted by Congress — not to mention their substance — the bills could not be less alike. And therein lies an illuminating — some would say frightening — story.
To wit, the 1986 bill took two years to create, with lawmakers holding dozens and dozens of hearings and taking testimony from thousands of witnesses. The process was a classic reminder, almost like those “How a bill becomes law” charts in school textbooks, of how Congress, with fits, starts and seemingly endless deliberation, inches its way toward final legislation.
Contrast that with the Trump tax bill, which, driven by threats from big GOP donors, was rushed from introduction to passage in just 51 days, leaving no time for substantive deliberation or negotiation — nor even a full understanding of how much debt it would create. Even some Republican tax experts are dismayed by the speed at which the legislation galloped through Capitol Hill — people like Dana Trier, a highly-respected tax tactician from the Reagan and George H.W. Bush administrations whom the Trump administration recruited in spring 2017 to work on the bill.
Pratheek Rebala (Center for Public Integrity)
“If you are like me and experienced the 1986 act, you really realize nobody can get tax legislation close to right anyway,” Trier said. “But this [2017 tax bill] is worse — there is no question about it in my view — than the 1986 act.”
The Trump bill was created in secret, and many legislators never saw some of its provisions, much less debated them, until it was introduced. The measure contained multiple provisions that don’t do what was intended and may take years to fix — if they can be fixed at all, experts say.
Because the measure was passed on a purely partisan basis (not one Democrat voted for the bill), it is unlikely that Democrats will be inclined to repair it, policy experts say. And, because of its errors, the tax legislation likely will add far more to the U.S. deficit over ten years than the $1.5 trillion the bill was designed to cost, jeopardizing the nation’s credit rating and fueling fears of cuts in Social Security and Medicare. Indeed, after spending more than a year insisting that the law must not run up the nation’s debt, Republicans added more to the debt with this legislation than any single tax bill in the past three decades, records show.
“We know the more quickly Congress tries to move on something, the more prone they are to making mistakes and to writing a bill that has unintended consequences,” said Molly Reynolds, an authority on congressional procedure at the Brookings Institution.
(AP Photo/Bob Daugherty) Lawmakers watch closely as Pres. Ronald Reagan signs into law a landmark tax overhaul on the White House South Lawn, Oct. 22, 1986, Washington, D.C. From left, are: Senate Majority Leader Robert Dole of Kansas, Rep. Raymond McGrath, R-N.Y.; Rep. Dan Rostenkowski, D-Ill., Rep. Frank Guerini, D-N.J.; Sen. Russell Long, D-La.; Rep. William Coyne, D-Pa., and Rep. John Duncan, R-Tenn.
‘We have hit rock bottom’
The 1986 and 2017 tax acts also differ in more substantive ways. The main thrust of the 1986 legislation was to end the tax breaks that had tilted the playing field toward corporations and the rich, while cutting tax rates for all. And the 1986 bill did all this in a way that did not create more federal debt.
The 2017 law does modestly cut taxes for the lower and middle classes, but its main beneficiaries were the rich and corporations. And the law actually created more loopholes and tax breaks, experts say, favoring those who can afford pricey accounting help. Ed Kleinbard, former chief of Congress’ nonpartisan Joint Committee on Taxation, which assesses tax legislation Congress proposes, called the law a “Christmas present to the donor class” and “an abomination.”
Many academics fear what the tax law will create. “Many of the new changes fundamentally undermine the integrity of the tax code and allow well-advised taxpayers to game the new rules,” wrote 13 professors of tax law in a December 2017 critique as the law sped toward approval. “We must aim to learn from this recent historical episode, wherein a rushed and secretive process resulted in deeply flawed legislation.”
Democratic lawmakers howled their protests. “I must say that with the passage of [the bill], we have hit rock bottom. No hearings. No witnesses. No amendments accepted by majority party or the minority offering. No regular order. No bipartisanship,” said then-Rep. Joe Crowley (D-N.Y.) during a House Ways and Means Committee markup of a follow-up bill in 2018. The 2017 tax bill, he said, “was rammed through this committee and rammed through the House of Representatives.”
“No hearings. No witnesses. No amendments accepted by majority party or the minority offering. No regular order. No bipartisanship.” Former Rep. Joe Crowley, D-N.Y.
To counter accusations that their bill was passed on speed-dial and was strictly partisan, Republicans say the bill was six years in the making. They relied on bipartisan research and hearings, they say, conducted from 2011 to 2014 by Democratic Sen. Max Baucus of Montana and Republican Rep. Dave Camp from Michigan. Back then, Baucus chaired the Senate Finance Committee and Camp headed the House Ways and Means panel, yet they could not persuade a divided Congress to take up their tax reform ideas.
Brady, who by then chaired Ways and Means, told CNBC in April 2016 that Camp “made tax reform inevitable, in the sense that he showed you could broaden the base and lower the rates and simplify the code and be competitive around the world.” When an interviewer pointed out that Camp’s own party killed his legislation, Brady replied, “I don’t think it got the oxygen it deserved at the time.”
One proponent of the six-year-in-the-making argument is Mark Prater, who was chief tax counsel to the Senate Finance Committee until he left in May 2018 to join professional services firm PricewaterhouseCoopers. In a recording of a tax seminar last summer obtained by CPI, Prater said his committee had relied on “dozens of hearings, lots of reports, lots of joint committee activity, lots of production there over that six years.”
But others claim the Republicans just cherry-picked a few GOP-backed ideas from the Baucus-Camp work. Baucus said in an interview with the Center that the 2017 tax law has some elements of the legislation he and Camp proposed, such as cutting the corporate tax rate, only taxing domestic corporate profits, and reworking taxes on the profits of multinationals to get them to return their money to the United States.
But that was as far as the similarities went, Baucus said.
“Their claim is accurate as far as the beginning,” Baucus said, “but then [the legislation] went off the tracks.”
Baucus said he has four overriding concerns with the 2017 bill: It was written in private, no hearings were held on its substance, it gave too much of the tax cuts to the wealthy, and it adds more than $1.5 trillion to the deficit over 10 years.
When contacted by phone, Camp, now a senior policy advisor with PricewaterhouseCoopers, said he wanted to be interviewed for this article, but days later the company’s public relations firm said in an email that Camp would have to decline because he couldn’t make the time.
In an interview with The Washington Post in early 2017, when tax reform talk was heating up in Congress, Camp rejected the idea that his 2014 bill, numbered H.R. 1 just as the 2017 legislation was, should have been necessarily relied on.
“I think there’s a number of alternatives and decision points throughout a process like this, and it doesn’t have to be all like H.R. 1 or all like other proposals that have been discussed in the past,” Camp said. “Obviously, the kinds of assumptions I made in putting together H.R. 1 aren’t necessarily the same assumptions you might make today.”
Prater declined a request for an interview. Dozens of lawmakers and party leaders, both Republicans and Democrats, as well as lobbyists, declined requests for interviews or didn’t respond to requests to comment.
Thousands of witnesses, scores of reports
To be sure, the political climate was different in the mid-1980s. Tax reform had been percolating in Congress for years, and in 1982 Democratic Sen. Bill Bradley of New Jersey and Rep. Richard Gephardt of Missouri sponsored a bill that proposed to close loopholes for the rich and cut marginal tax rates for all income brackets. Though that measure never made it to a vote, President Ronald Reagan, in his state of the Union address in January 1984, pledged to reform the tax code. The following year, Reagan reiterated his pledge and Democrats thought it wise to join in.
Soon, Congress — where the GOP controlled the Senate and the Democrats owned the House — was abuzz with hearings on taxation. Seventy-one hearings were held in 1985, by 13 different committees, including House Banking, Small Business, Public Works, and Senate Energy, and Labor. Some went on for three, four or five days, and some were held far from the Capitol — in Oklahoma City, Cincinnati, or South Bend, Indiana, for example. The witness lists were exhaustive: two or three dozen witnesses per hearing were not unusual.
Subjects ran from the general (“Fundamental Tax Reform”) to the arcane (Carryover of Net Operating Losses). Politicians delved into sensitive social issues, holding hearings on how tax reform would affect low-wage workers and the poor.
Drafting the tax reform bill was messy. Bills were introduced and rejected, deals were cut, and leaders tried again and again to find something that would pass. Finally, on Dec. 3, 1985, 11 months into the 99th Congress, H.R. 3838 was introduced in the House. After several setbacks, it passed the House on Dec. 17 on a voice vote. Off it went to the Senate, which scheduled 12 more hearings to work up its own bill.
The Finance Committee kicked off a series of five get-togethers specifically on the bill’s provisions. In one marathon session, held April 21, 1986, titled “Proposals Related to Excise Taxes,” 27 witnesses —limited to five minutes each—testified in one day. A House Ways and Means subcommittee, not satisfied even though that chamber had already passed its bill, held a hearing on “miscellaneous tax provisions.” Ninety-two witnesses were called.
The final scorecard? Over two years, the 99th Congress held 89 hearings on tax reform and heard from nearly 2,600 witnesses, according to the Center’s review of hearing records.
Other groups weighed in — massively. The Joint Committee on Taxation — a nonpartisan congressional team of experts that assesses tax topics for Congress — supplied politicians with 62 reports over 21 months. The Congressional Budget Office and the Congressional Research Service wrote 10 more. One report was titled “Blacks and Tax Reform: Possible Impacts on Blacks of Selected Proposals of HR 3838.”
On June 24, 1986 — 189 days after the House passed its bill — the Senate approved its version. It took three more months of work in conference to create a bill the two houses could agree on. Reagan signed the bill on October 22, 1986 – 11 months after the bill was first introduced.
(AP Photo/Bob Daugherty) Lawmakers watch President Ronald Reagan sign into law the 1986 Tax Reform Act on the White House South Lawn on Oct. 22, 1986. From left, are: Senate Majority Leader Robert Dole of Kansas, Rep. Raymond McGrath, R-N.Y.; Rep. Dan Rostenkowski, D-Ill., Rep. Frank Guerini, D-N.J.; Sen. Russell Long, D-La.; Rep. William Coyne, D-Pa., and Rep. John Duncan, R-Tenn.
The new law — 878 pages long — was designed to simplify the tax code, make it fairer, and incentivize growth. But its main thrust was true “reform” – cleaning out many of the special loopholes and breaks that had crept into the code over the years. It raised the tax on capital gains, but also cut the top individual rate from 50 percent to 28 percent. It pulled in $24 billion from corporations by adjusting tax shelters, while cutting corporate taxes from 46 percent to 34 percent. (The rate later crept up to 35 percent). And it shrank the number of individual tax brackets from 15 to five.
In short, said Gene Steuerle, coordinator of Treasury’s reform effort from 1984 to 1986 and now a fellow at the non-partisan Tax Policy Center in Washington, “individuals got a modest tax cut and corporations got a modest tax increase.” Perhaps most important, the measure did not increase the national debt.
A road less traveled
Republicans chose a different approach for their 2017 bill. That year congressional Republicans were under tremendous pressure from Trump, his base, and their wealthiest donors to do two big things: repeal Obamacare and enact tax cuts by the end of the year. Their first legislative effort failed. On July 28, the effort to repeal Obamacare died with a “no” vote by Sen. John McCain, R-Ariz.
U.S. Congress The late Sen. John McCain’s defining ‘no’ vote on the Republican bill to repeal Obamacare on July 28, 2017. (U.S. Congress)
That left the tax bill, whose passage was dubious at best. One senior Republican senator lamented it would make repealing Obamacare “look like a piece of cake.” Republicans were panicking. They believed they had to notch a big legislative win if they were going to survive the coming midterm elections — and even future ones.
“You have to understand the pressure these staffs were under,” said one lobbyist close to the process. “The fate of the Republican party rested with them.” Indeed, they faced the seemingly impossible: research, write, debate, and pass tax legislation that would satisfy donors, corporate supporters, and the party’s conservative ideologues — all in five months.
Republicans didn’t have time for the normal legislative process — Democrats say it was hard to call it a process at all. The House Ways and Means Committee held only four hearings — two in May and two in July. But because the bill had not yet been drafted, the hearings were limited to the broadest subjects. “How Tax Reform Will Grow our Economy and Create Jobs” was one. “How Tax Reform Will Simplify our Broken Tax Code” was another.
The subjects of the Senate Finance Committee’s hearings were just as vague: “Comprehensive Tax Reform,” “Individual Tax Reform” and “International Tax Reform.” The hearings totaled 11 in the House and Senate. Forty-five witnesses were called, never more than five per hearing. Nearly half came from inside the Beltway. None dealt with specifics because the tax bill was still being drafted — in secret.
That was it for hearings. After the House bill was introduced Nov. 2, 2017, that chamber scheduled no hearings. In 1986, even after its tax reform bill was passed, the House scheduled two more hearings with 131 witnesses. In 2017 the Senate didn’t hold one hearing on the Tax Cuts and Jobs Act after it was introduced. In 1986, after the Tax Reform Act went to the Senate, that chamber held 12 hearings with 197 witnesses.
Hearings play a vital role in the passage of laws, experts say. If done well, they elicit reactions to legislative proposals from the people who would be affected — but also from people who have no skin in the game. “If you don’t have hearings, if you don’t bring the experts in, if you don’t hear many sides to the issues, if you don’t allow for that input, then you don’t really have legislation,” Rep. Bill Pascrell (D-N.J.), a senior member of the House Ways and Means Committee, told The Hill last week.
Hearings also increase responsibility, said Brookings’ Reynolds. “You’re getting views clearly on the record, from outside groups and from experts,” she said. “If we’ve brought these witnesses to testify, you’re saying, ‘Congress, you made this choice having heard these witnesses.’”
A rosy estimate
Normally, Congress also relies on the nonpartisan Joint Committee on Taxation to assess how much money its tax proposals will either add to or take away from the treasury. In 2017 the JCT issued 27 reports, but Republicans eschewed the panel’s advice on the big question of whether the proposed tax cuts would generate any economic growth to partially offset the trillions of dollars in lost revenue.
It’s not that the JCT couldn’t do the work, known as a macroeconomic analysis. But the House bill was moving so fast that the JCT couldn’t get an analysis out in time for the vote. (JCT finished its report on the House bill 25 days after that chamber voted on it.) So, the JCT focused on assessing the Senate version, which came later. That report made it to senators Dec. 1, 2017 — just one day before they voted on their bill. The report concluded that even with the economic growth the tax cuts would generate, the Senate bill would still cost the nation more than $1 trillion over 10 years.
The JCT crashed a final report on the conference bill, concluding the final version would add nearly $1.1 trillion to the national debt. But, the report was finished the day Trump signed the bill into law, on Dec. 22, 2017, so lawmakers never got to use it.
Still Republicans did have at their fingertips other research on the cost of their bill. One report in particular was released Dec. 18, 2017, by the Tax Foundation, a conservative think tank in Washington. It published a rosier estimate that found the tax bill would add only $448 billion to the national debt over 10 years, less than half what the JCT would report four days later. Indeed, the Tax Foundation had issued numerous reports on Republicans’ proposed tax policies and bill ideas throughout 2017, many of which carried weight among Republicans on the Hill, Washington tax experts and lobbyists said.
“The House majority did not wait for a JCT staff macroeconomic analysis and instead relied on any private estimate that suited its fancy,” wrote the former JCT chief Kleinbard. “The Senate essentially did the same.”
Some believe that if Congress had held hearings on the bill, wiser minds could have sounded alarm bells about the debt it would create. The hearings, they say, might have steered the bill more toward helping low- and middle-income families, and minorities. Hearing witnesses also might have warned that the increase in the debt threatens Social Security and Medicare, and even national security.
But others argue Republicans were going to do what they were going to do, no matter what official studies showed. “I think, generally, the interest of the members of Congress pushing for the bill was a tax cut that was fairly regressive,” said Lily Batchelder, a former Senate Finance Committee chief tax counsel and now a tax law professor at New York University. “That’s what they put forth, and I think that aligned with their views of what’s best for the economy.”
One thing is certain, tax researchers say. The bill will need major repairs so that taxpayers can understand it, tax preparers can interpret it, and the legislation can have its intended effects. Many of the needed fixes will require new legislation, of the sort House Republicans unveiled in a 297-page bill on Nov. 26. House Democrats immediately signaled their unwillingness to cooperate without concessions, and the bill was unable to pass the Senate where it needed 60 votes.
Now, with Democrats in charge of the House, it will be even harder for Republicans to make needed fixes in their bill. And because Republicans control the Senate, Democrats will find their way blocked to changing or repealing parts of the law. Instead, they promise to hold hearings on the parts of the tax bill they say are confusing – or they just don’t like.
That leaves grizzled tax policy veterans like Trier pessimistic about the future of changes in this Congress, or for many to come. “This legislation, in significant parts, it could be fixed; it would not be that hard,” he said. “The problem is that with all the partisanship, it won’t occur.”