Tax Reform: Then And Now

In 1986, President Ronald Reagan signed the last major overhaul of the U.S. tax code. This election year, both President Barack Obama and Gov. Mitt Romney say they are committed to serious tax reform, which would include simplifying the code and reducing middle-class tax rates. Weekend Edition host Scott Simon talks with New York Times columnist Joe Nocera, who takes a look back at the historic 1986 reform and finds the required elements of that deal missing in the current political climate.

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SCOTT SIMON, HOST:

In an election year marked by heated partisan exchanges and personal attacks, President Obama and Republican challenger, Mitt Romney, agree on something: tax reform.

PRESIDENT BARACK OBAMA: When it comes to our tax code, Governor Romney and I both agree that our corporate tax rate is too high. So I want to lower it, particularly for manufacturing...

MITT ROMNEY: The secondary then, taxation, we agree, we've got to bring the tax rates down, and I do, both for corporations and for individuals.

SIMON: Both men speaking at the first of the 2012 presidential debates. The last major tax reform happened under former President Ronald Reagan in 1986. Mr. Reagan called the legislation a sweeping victory for fairness. It lowered individual income tax rates. It ended many special deductions and shifted tax burden to businesses.

Joe Nocera, our friend from the business world, finds the necessary elements of the 1986 tax deal might be missing in today's political climate. He's an op-ed columnist for The New York Times, and joins us from New York. Joe, thanks so much for being with us.

JOE NOCERA: My pleasure, Scott.

SIMON: So how would the Reagan tax reforms fair in today's economy?

NOCERA: There are similarities and differences between then and now. There is a general consensus that we should get rid of what are called tax expenditures. All the credits, all the deductions, you know, everything that you get to deduct from your taxable income.

Here's the problem, Scott. In 1986, tax reform wasn't really trying to raise additional revenue. In 2012/13 with a $16 trillion debt and a trillion dollar plus deficit every year, there is a need to raise revenue. And so part of the appeal for Republicans about tax reform is it's a way to raise revenue without raising tax rates.

And what the Democrats are saying, is that the math doesn't add up. And if you really want tax reform, you still have to have a higher individual rate of wealthy people if you really want to cut the deficit.

SIMON: What about the approaching fiscal cliff, which is the phrase that's begun to explain the dramatic spending cuts and tax increases that could tax effect in January unless there's a congressional budget deal. Does that focus the mind?

NOCERA: It does and it doesn't. There's no possible way that you can have any kind of serious taxation effort in the six weeks that we're going to have between the end of the election and the end of the year when fiscal cliff is supposed to fit in place. The best you could hope for is some kind of frame work, where you agree to do something in the next Congress and they eliminate the fiscal cliff. Nobody can fall off of it because it's now a plateau.

So then, we get the question of are they just going to kick the can down the road, or are they really doing something serious for 2013? And we don't really know the answer to that yet.

SIMON: Has something else changed since 1986, and that is the willingness of politicians of any party to deal with each other?

NOCERA: Boy, is that a fact. You know, I talked to Bill Bradley, the former Senator and basketball player, who was really instrumental in instigating tax reform in the 1980s. And he basically said, you know, back then you could cut deals. You could have a drink with your counterpart on the Republican side. Part of the problem today is that the two sides are so entrenched and they really don't like each other.

And there's very little back and forth anymore. It has changed the dynamic and it's what makes deal-cutting, which is, you know, at the center of what Congress is supposed to be doing, almost impossible.

SIMON: And what do you foresee happening, almost irrespective of the results, when Congress gets together again after the election?

NOCERA: Well, I feel fairly confident that Congress and the president will figure out some way to avoid the fiscal cliff. The president is on record as saying it's not going to happen. Everybody on both sides of the aisle are worried about across the board cuts. Even if you agree that we should cut the budget of the Pentagon, you want to do it judiciously and wisely and not take a meat axe to it.

So they will come up with some kind of deal that allows both sides to save face and that will push the real problem to 2013 and then the question will become, you know, are we going to do it again? I might point out, Scott, that 80 CEOs signed a letter, recently, that they sent to Congress saying, please figure out a way to avoid the fiscal cliff because, among other things, it's bad for business.

SIMON: Joe Nocera, op ed columnist for the New York Times speaking with us from New York. Joe, thanks so much.

NOCERA: Thanks for having me, Scott.

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