The federal tax code is the primary tool used by Congress and the Executive Branch to direct public policy. The evolution of the tool in its most tangible form is a federal tax code that now runs to 76,000 pages of often arcane guidance and interpretation. And most tax preferences ("loopholes" to detractors) have highly organized and politically active constituencies.
It is against this daunting history of code manipulation that the great budget debate of 2013 is beginning to unfold. And in some quarters at least, the way Capitol Hill has traditionally sought to shape policy is being juxtaposed against the reality of a $17 trillion debt and slowly recovering economy; a state of affairs that could generate enough momentum for a serious stab at fundamental tax reform; what Capitol Hill insiders call "heavy lifting". And there's nothing heavier than taking away a benefit that voters have come to expect.
The gut checks are monumental: Could Republicans stomach a slimmer code that produced more revenue for the federal government to spend? Could Democrats willingly give up their favorite policy tool in the interest of tax simplification? Could enough Members of both parties find the intestinal fortitude to reform heretofore sacrosanct entitlements through means testing, raising age qualifications, and higher co-pays? Would an American electorate addicted to tax preferences allow its representatives to draft a flatter, less preference-laden tax regime?
The new year has already produced its share of minor budget showdowns. Each side can claim a political win. The "fiscal cliff" negotiation gave the President his long-promised tax increase on the wealthy, while his overblown rhetoric on the consequences that would follow from an $85 billion sequester cut was met by a collective yawn from the general public and some unexpected bad press by a usually friendly media.
Each success has encouraged the respective combatants. For the President, new revenue of $600 billion (from the expiration of the Bush tax cuts) has whetted his appetite for additional taxes, this time from elimination of tax "loopholes" and "preferences". On the other side of the aisle, Republican fiscal hawks are encouraged by the public's seeming acceptance of a "real" budget cut for Washington, D.C.
Remember, this battle is about deeply held philosophical differences that play out every two years before the voting public. Obama Democrats believe in higher progressive taxes and no entitlement reform. The GOP firmly opposes additional tax increases and will require significant entitlement reform. And both parties fear weaning the American public off its tax code dependence.
For those of you inclined to gamble, always bet the "under" on fiscal restraint and fundamental tax reform coming from Capitol Hill…you'll rarely lose.