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Tax Man

Hoping for deep tax cuts, simplification or reform to stimulate business activity? Given the widening gap between Congress and President Bush, don’t hold your breath. And don’t turn to Dan Rostenkowski, who says he’s more interested in slashing the deficit and balancing the budget.

Neither a lawyer, nor a college graduate, and by some not even considered a tax expert, Dan Rostenkowski, 64, is one of the nation’s most powerful legislators by virtue of his chairmanship of the House Ways and Means Committee. The constitutional requirement that all revenue measures originate in the House is the source of Ways and Means power. Son of a Chicago ward alderman, “Rosty” has served that city’s eighth district, which includes a goodly chunk of the Polish American North Side, for three decades.

According to the Almanac of American Politics he started off badly in 1981, the first year of his committee post, when he “seemed determined above all else to have his name on the tax bill that passed the House.” Rostenkowski bid for support from all manner of lobbies, letting everyone tack favored provisions onto the bill in return for support. The bill lost anyway. In 1982, he went along with the Senate’s tax bill without substantial change. Since then, he has been an active leader in all manner of revenue measures, making ample use of his negotiating skills and technical ability to work the legislative machine.

Rostenkowski was largely responsible for the 1983 Social Security rescue measure and the 1984 cap on the third year of the Reagan tax cut. Sensing that the country was ready for tax reform, he brokered the 1985 measure originally sponsored by Senators Bill Bradley and Richard Gephardt, even to the point of going on television to ensure that it received support. Business leaders and tax lobbyists who, when not engaging him in a friendly golf game, bow at the waist in deference to his power on the Hill, do not accuse him of being an innovator. But neither do they find him swept away by enthusiasms that would lead to even more redistributive tax policies.

Since President Bush vetoed the first round of tax legislation this year, meaningful reform or simplification isn’t likely until 1993, after the general election. The Tax Foundation’s Chief Tax Counsel Floyd Williams found plenty to dislike in both the House and Senate bills, which reshuffled tax rates in order to give modest cuts to some middle-income ratepayers. However, the House version’s provision of 14-year amortization for purchased intangibles would, in Williams’ view, have been a major step for simplification and reduced compliance costs for business.

CE asked the affable Rostenkowski to tell CEOs where tax policy is headed.

SLASHING THE DEFICIT

What do you think should be done through the tax code to spur American business and to strengthen the economic recovery?

The best way to strengthen the American economy is to reduce the deficit. That means that we should not pursue tax changes, however meritorious, unless they are done in a way that is at least revenue neutral.

I don’t like industry-specific policies-picking winners and losers. That is why the economic recovery program I proposed earlier this year included a one point cut in both the corporate tax rate and the minimum tax rate. This proposal unfortunately died, largely because of a near total lack of support from the corporate community.

Until there’s some consensus from the business sector about what should be done, tax remedies to aid the economy will be on the back burner.

What would you like to see done to encourage savings and investment?

Saving and consuming are two elements in the same equation. Obviously, our economy would be healthier if there was more savings and capital available for investment. A balanced federal budget would go a long way toward addressing our national savings and capital formation problems.

Reducing the deficit is the most effective way of making more money available for productive investment. I am generally wary of using the tax code to provide savings incentives.

The business community needs stability and certainty in the tax law, yet, in recent years, it seems as if the tax law has changed annually. Do you see any solution to this problem?

All taxpayers, including the corporate community, would benefit from an extended period of tax stability. Yet there is constant pressure from many taxpayers to change the tax laws and make certain provisions more advantageous to them. Earlier this year, the pressure came from the president and his demand that we produce a tax bill in six weeks.

Congress successfully resists the great bulk of this pressure. If we rejected all suggested changes, however, we’d be properly criticized for being unresponsive.

There is no “solution” to this problem. I try to deal with the continuing pressure by requiring advocates of change to make a compelling case before we take them seriously.

DEVELOPING CONSENSUS

Do you envision any radical changes to the tax law?

I do not anticipate any radical changes in our tax laws in the next few years. There appears to be a developing consensus that it would be good to tax consumption more and savings less. But there is no agreement on a plan and there is concern as to whether the gain from such a change would be worth the pain that such an effort would inflict on taxpayers.

But you won’t see any radical changes in our tax laws-to a consumption tax or anything else-unless the president forcefully endorses it and puts the prestige of his office behind the campaign for it.

What do you think were the best reforms to come from the 1986 Tax Act? The worst? The Tax Reform Act of 1986 was very successful in broadening the base and lowering the rates. I continue to favor legislation that moves in that direction.

There is a broad view that the changes made in the way real estate investment is taxed went too far.

What role do you see for the business community in the future of tax policy debates?

One of the most refreshing and encouraging events that led to the enactment of the Tax Reform Act of 1986 was the creation of the Tax Reform Action Coalition (TRAC), a corporate tax reform support group. TRAC continues to play a constructive role in the ongoing tax debate here.

I would like to see the business community spend more time in such collaborative efforts and less time fighting for industry or company-specific tax breaks.

SEEKING SIMPLIFICATION

How realistic is it to think that Congress could enact simplification legislation that would meaningfully reduce the corporate compliance burden?

Our tax system will never be truly simple. If an institution has a complex financial system, it will inevitably have a complex tax situation, unless you’re willing to totally sacrifice fairness to achieve simplicity. I don’t think many corporate officials would be willing to make that sacrifice. Nor should they.

Simplification is a never-ending effort. I have several bills pending in this area at the moment, many of which were included in the tax bill that the president vetoed a few weeks ago. But I hope that most of my simplification proposals ultimately will be enacted.

I welcome advice from the corporate community on elements that deserve priority attention in our quest for simplification.

But candor requires me to warn that simplification is a process rather than an ultimate goal that will never be fully achieved.

Do you think we will see corporate tax integration anytime soon?

The integration issue is one of several that is virtually no detectable public interest in integration, and no clear consensus on which way to go from the business community.

The Treasury report was a useful, well-written academic exercise with absolutely no political value since it only listed “options.” Corporate integration will move in Congress only when the president defines it as a priority and submits a specific proposal-not an option menu-to the Congress.

What do you think Congress should do to improve the international competitive position of U.S. multinational firms?

The question is a good one, but I don’t have a clear answer. Our committee issue retreat this year will focus on international competitiveness.

Without prejudging the result, my sense is that we’ll find there’s not much to be done through the tax code. Noneconomic solutions, like improving our educational and job-training systems, will be important parts of the answer.

Are you concerned about declining foreign investment in the U.S.?

In an increasingly interdependent international economy, investment among nations will inevitably ebb and flow. That’s something we’ll have to learn to live with.

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