Federal Wrangling over Tax Reform May Result in Dangerous Surprises

By Heinemann, H. Erich | American Banker, November 4, 1985 | Go to article overview

Federal Wrangling over Tax Reform May Result in Dangerous Surprises


Heinemann, H. Erich, American Banker


THERE ARE TWO major sideshows running on Capitol Hill these days -- tax "reform" and budget "control." Both deal with the size, functions, and financing of the federal government. Unfortunately, neither seems likely to produce conclusions that will satisfy the needs of the economy or, equally as critical, those of the body politic.

The House Ways and Means Committee -- more particularly its chairman, Rep. Daniel Rostenkowski, D-Ill. -- has temporarily seized the initiative on tax reform from the White House and is concocting its own very special stew of tax measures. Just last week, Mr. Rostenkowski promised that his committee would produce a bill by the end of this month.

Assuming that Mr. Rostenkowski, who has aspirations to be speaker of the House in the next Congress, can deliver on his promise, it is still far from clear that the result would represent "reform" in any generally accepted sense of that world. Mr. Rostenkowski's version of an ideal tax code is likely to be sufficiently removed from the consensus in the Senate, not to mention the administration, as to send the whole tax debate back to square one.

A typical reaction came from Jack F. Bennett, senior vice president of Exxon and undersecretary of the Treasury for monetary affairs under President Ford. "Those unprincipled proposals [drafted by Mr. Rostenkowski's staff]," Mr. Bennett said, "would not only seriously delay the recognition of depreciation, but would all but eliminate the small step proposed by the administration to reduce the double taxation of income earned through corporate investment."

PRoposals to Balance Budget

Meanwhile, a gaggle of 57 congress-persons (nine senators and 48 representatives) is attempting to hammer out compromise legislation to boost the federal debt limit above $2 trillion for the first time and at the same time to mandate a balanced budget by 1991. Senators Phil R. Gramm, R-Tex., Warren B. Rudman, R-N.H., and Ernest F. Hollings, D-S.C., have proposed a plan that would purportedly force Congress and/or the White House to cut spending and/or raise taxes sufficiently to balance the budget over the next five years.

In essence, if Congress fails to meet the guidelines for the budget in the bill, the President would be required to "sequester" a sufficient amount of spending to achieve that result. The proposed legislation calls for all programs to be sliced by an equal percentage. However, Congress has already exempted 55% of the budget from the provisions of the bill (Social Security, interest on the debt, and payments required under outstanding contracts), so it is obvious that the impact will be far from even.

Lawrence A. Kudlow, a Washington consultant and erstwhile chief economist of the Office of Management and Budget, called the Gramm-Rudman-Hollings bill "a major step forward. This new rule will be used by Congress," he said the other day, "as a crutch to lean on when it comes time for politically tough budget cuts. [It] will result in greater election-year deficit reduction than would have otherwise been the case."

Mr. Kudlow may be correct in his assessment. But many analysts are skeptical. In particular, they note that in the short run the level of federal revenues and outlays is primarily a function of economic performance -- not of actions by the administration and Congress.

Like King Canute, who commanded the tide to stay out, Congress can legislate a balance budget, but unless the economy cooperates, nothing much will happen. In fact, this is recognized in the Gramm-Rudman-Hollings bill -- in case of recession, the proposed time-table would be suspended.

A Comic Spectacle that Isn't Funny

There are many elements of comic relief in the tax, spend, and borrow sideshows, but as a bottom-line matter, the spectacle really isn't very funny. The congress people are playing around with our money. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Federal Wrangling over Tax Reform May Result in Dangerous Surprises
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.