Washington's Never-Ending Tax Cut Fight

At a recent tax policy symposium, I was struck by the extent to which business leaders have lost faith in Washington's ability to craft a coherent tax policy.

Last week, I moderated a small year-end tax planning symposium for chief financial officers. During my career, I have probably moderated well over one hundred such events. We review the current law, we discuss passed and proposed changes in tax law for next year, identify key dates for decision making for the current year, have a glass of wine and go home. For me, these events are generally, "been there, done that" evenings. Not this year.

Last week's symposium offered two virtually unanimous positions that I have not previously encountered. Position one was the fear that Washington has no coherent tax policy. It was the view of the participants that neither political party seems able to articulate a consistent tax policy that comports with long term economic policy. Therefore, there could be no certainty with respect to future legislation or the timeline with proposed legislation (short term or long term).

Position two was that there was no trust in the decisions being made with respect to tax or economic policy by our government that could be relied upon policy-wise and didn’t appear tainted by perceived political opportunity.

During the accompanying discussion, references were constantly made to the manner in which the healthcare reform legislation was crafted, the special interest sections included in that bill and the difference between the bill’s realities and the political public posturing. Again, the criticism and cynicism was directed to both political parties.

One symposium participant was adamant that within days we would learn that the tax proposals being made by the President and the Republican Senate Minority Leader would quickly be accompanied by special legislative deals that would "turn the stomachs of many voters." This woman will forever have soothsayer status in my book.

Confirming the position of the symposium participants that any decisions being made by Congress in December of 2010 could not be relied upon in the future were the President’s comments indicating that he was going to pursue fundamental tax reform in 2011. While there is nothing wrong and many things right with pursuing fundamental tax reform, someone should mash-up a video on YouTube showing the President making a recommendation on tax rates and tax policy in the same speech where he discusses the need for fundamental tax reform. Here, A plus B equals an inability to plan for the future.

The technical debates over the current tax proposal are interesting.  However, they may not be nearly as important as the perception that our elected officials have missed the voters’ message in two consecutive elections. In 2008 and then again in 2010, voters voted for change. Yes, change in direction, first left and then right, but perhaps more important, change in the way the federal government does business.

Voters do not want negotiations behind closed doors regardless of who is behind the closed doors. And, they want the President and Congress to produce legislation that is equally good for the country regardless of whether one senator can get a special deal for a few.

Voters don’t want major tax legislation to turn on whether various Senators can gain local political favor by extending tax benefits for producing ethanol, hiring American Indians or creating tax breaks for restaurants, movie producers and NASCAR track owners. And let no one forget the national hue and cry for economic development credits for investors in American Samoa. I am certain the last one came up during dinner last evening in the homes of most Americans.

The President and Congress need to get the message that their most important responsibility in the future is to regain the trust of the voters. To do that, special purpose legislation needs to be voted on separately with respect to its merits and not bundled with other time sensitive crucial legislation and not pushed on the underlying sad reality that Senator X owes a favor to a contributor or constituent.

Times have changed, voters have changed and those voters have access to greater information about government. The manner of doing business in Washington DC has to change, too.