Chapter 6: The Tax Game

WHAT IS THE TAX GAME?

Only a minuscule percentage of American citizens understand tax law, tax policy and how elections for public office are conducted. As a result, the way tax laws are passed and tax policy is implemented is a “game” played by politicians, lobbyists, businesses, and the wealthy. This “game” is opaque to the ordinary citizen, and therefore it is a game played by a select few which ends up being in the interests of a select few. So, it is essential that American citizens acquire a basic understanding of the tax game, who plays it and how it is played so they can learn to protect their own interests and ensure that they become winners in the game.

WHAT THE TAX GAME SHOULD PRODUCE FOR AMERICA

Who pays what in taxes results from an ongoing high stakes game played under loosely defined and elastic rules that favor those who are wealthy, avaricious, ruthless, and clever, and in which the dearest skill is the ability to create false myths that convince the many to believe that it is in their interest to benefit the few. Creating false and convincing myths is a pleasant way to describe sophisticated and skillful lying.

If the tax game were to be played honestly and in the national interest, it would produce a system of taxation based on the following principles:

• Taxes must raise enough revenue to both pay the ongoing cost of government and keep the national debt at a financially responsible level.
• At the low-income end no person should be taxed into poverty, and at the high-income end no person should be taxed so high that they lack a reasonable incentive to earn the next dollar.
• Taxes should be allocated among those in between the worst-off and the best-off based on ability to pay.
• Taxpayers who have roughly the same income should pay roughly the same taxes.
• Taxes should promote economic growth.
• Taxes should not distort the allocation of investment capital.
• Taxes should be friendly toward families—for America’s workforce to be large enough to meet the needs of a growing economy and to generate sufficient revenues to pay for America’s social insurance programs, tax policy must encourage America’s families to grow larger.
• The tax laws should be as simple as possible.

Instead, America’s tax laws are infested with hundreds of tax preferences most of which (1) make it more difficult to raise the necessary revenue, (2) cause many taxpayers who make about the same income to pay dramatically different amounts of taxes, (3) divert investment capital from market favored purposes to politically favored purposes, and (4) add undue complexity to taxation. Aside from the economic harm done by tax preferences, they corrupt politics in general and the tax game in particular. Explaining how the tax game is played explains the proliferation of tax preferences.

Politics and the Tax Game

Politicians can stomach overhauling the structure of the tax laws only about once a generation. Major structural changes were made to the tax laws in 1939, 1954, and 1986, and in between, the politicians have only nibbled at the edges. Nibbling, however, can have significant revenue implications if tax rates are cut substantially and tax preferences are made more generous. In 1981, the Reagan Administration enacted a significant tax cut as did the Bush Administration in 2001 and 2003, but none of these cuts involved major structural change. In each case, the politicians cut tax rates and expanded tax preferences. Each time the politicians cut taxes, the national debt grew.

Two reasons explain why the politicians timidly approach structural change in the tax laws—one is a reluctance to create economic uncertainty, and the other is fear of taxpayer retribution.

First, the economy abhors confusion and uncertainty. Significant structural changes in the tax laws affect individual financial decisions for millions of taxpayers that determine how they live their lives and prompt many taxpayers, both individuals and businesses, to ask questions such as: Should I buy or rent? Can I afford to retire? How can I send my kids to college? Should I carry life insurance and health insurance? What will my after-tax income be? How much can I plan to spend? Should our company purchase new equipment this year or wait until next year? Should our company increase its dividend this year or wait until next year? I’ve got a capital gain in some stock I own, should I take it this year or wait? These questions and many more can lead to taxpayer confusion and uncertainty that risk disrupting the economy.

Getting into anything that confuses millions of taxpayers and potentially disrupts the economy terrorizes most politicians, even the bravest and most noble (an oxymoron?). For virtually all politicians, changing the structure of the tax laws should not occur any more frequently than Halley’s Comet comes–once every 76 years. So, to save taxpayers the burden of informing themselves about changes in the tax laws and to avoid harming the economy, politicians happily steer clear of major structural changes in the tax law. Structural changes in tax laws only occur when the politicians are certain that an overwhelming majority of taxpayers are so disgusted with the existing tax laws that they are ready for a change—a generational event.

Second, structural changes in the tax laws inescapably create winners and losers among taxpayers. Even if the changes do not increase the overall tax burden, each tax law change upends the status quo for millions of taxpayers. Over time, taxpayers learn to live with the status quo, even if they know that it is unfair. Changing the status quo means some taxpayers will be better off (the winners) and others will be worse off (the losers). Taking away a tax preference that a taxpayer has become accustomed to can traumatize the taxpayer more than if he or she were to lose a cherished pet.

In deciding when and what to change in the tax laws, politicians calculate whether a change will advance their careers, and if they do not believe that it will, then there is little chance of a change being made. For a politician to believe that a change will help them, he or she must believe that their key supporters believe that the change will benefit them. Supporters include not only the voters whose vote determines the politician’s fate, but more importantly, supporters include those who provide campaign contributions.

Politicians know that campaign contributions can be used to convince voters of things that are not so—it is the value of myth-making. Even though a tax preference may only benefit a small group, advocates of the tax preference can tilt a politician’s calculation in their favor if they are willing to raise enough campaign contributions to convince the public that the tax preference is in the public interest. Successful politicians make it their business to know what tax preferences are dear to their supporters, and knowing this, they make sure that they do not do anything to upset them. Structural reform of the tax laws means changing or eliminating hundreds of tax preferences that are held dear by many supporters of most politicians. Out of fear of stirring up a hornets’ nest among their supporters, most politicians shy away from structural reform.

In almost all sessions of Congress, the politicians decide that they can hype some segment of the economy by adding one or more tax preferences and/or that they can end some abuse by eliminating a few. Generally, what hypes the economy and what is an abuse are both matters of party doctrine—in other words, faith-based economics depending on which party the politician belongs to. Politicians of the right and left each have their own pet tax preferences that they like to either expand or curtail. Most changes that nibble at the edges result in an overall loss of revenues on the theory that a spoonful of sugar makes the medicine go down. Cutting taxes also cuts the risk of riling too many taxpayers—creating winners without obvious losers is the safest way for politicians to play the tax game. Those who are harmed the most by cutting current taxes without replacing the revenue—future taxpayers—do not vote. Knowing who you can hurt without fear of retribution is one of the keys to success in politics.

There are certain politicians who have politicked themselves into unique positions so that they have the power to make or break tax legislation as each biennial tax game plays out. These are: the House leadership, the Chairman and the members of the House Ways & Means Committee, the Senate leadership, the Chairman and the members of the Senate Finance Committee, and the President of the United States. What influences how these politicians ply their power determines the outcome of the tax game.

A taxpayer can easily figure out what influences a politician on tax matters by asking what would influence the taxpayer if he were in the politician’s place—a walk in the other guy’s shoes. Politicians, as humans, suffer from the same foibles as taxpayers and act accordingly. Like non-politicians, occasionally some politicians put the interests of others ahead of themselves, but usually most politicians, like non-politicians, put their own interests ahead of others—nothing new here.

Generally, nobility inspires a politician to protect the interest of ordinary taxpayers, and ambition inspires a politician to cater to special interests. Unfortunately for the ordinary taxpayer, nobility all too frequently leads to martyrdom, and ambition leads to success. Since survival of the fittest rules in politics, nobility is a weak reed on which the ordinary taxpayer can lean.

The tax game plays out in the arena of politics, and politics is a business much like selling stocks and bonds, insurance, or real estate. Instead of selling stocks and bonds to investors who the salesman convinces will make them money, a politician sells his constituents on his ability to promote their interest in politics. Just as salesmen sometime sell bum stocks and bonds to investors, politicians sometime bum out on their promise to promote the interests of their constituents.

Unlike investors who know whether the stocks and bonds they bought made them money, a politician’s constituents rarely have a clue whether the politician has advocated their interest or not. Since tax matters mystify most taxpayers, most taxpayers live in the land of ignorance regarding whether politicians are advocating their interest in the tax game. Taxpayer ignorance leaves politicians free to do what is in their interest rather than the interests of ordinary taxpayers. As salesmen, not educators, few politicians feel any need to teach tax policy to their constituents, including in particular not telling them that they are getting a raw deal under proposed tax legislation. Most politicians reason that if their constituents are not clamoring for any change in the tax laws, why stir up trouble.

As in business, where a crack salesman can get rich selling a bad stock to an ignorant investor, a politician can make it in the political world by advocating tax policies that are contrary to the interests of most of his constituents as long as they naively believe that he is shooting straight with them—a gifted salesman can sell a refrigerator to an Eskimo. P. T. Barnum summed up how most politicians approach selling when he said, “If you want to make a living, sell the people what they need, but if you want to get rich, sell the people what they want.” Catering to wants, instead of needs, explains why the national debt has grown over the last two generations. Although tax matters affect how much money most taxpayers will have to spend, and social issues like gay marriage, abortion, gun control, and flag burning do not, most taxpayers fixate on social issues and ignore tax issues. In a world of wants and needs, social issues are more like wants and tax issues are more like needs.

Other than a few millionaires who can afford to indulge themselves, most politicians are work-a-day stiffs, just like their constituents, trying to claw their way up the ladder of success in politics as their chosen field. Almost all of today’s politicians get into the business of politics as a full-time career. The example of the legendary Cincinnatus, a simple farmer in 5^th century B. C. Rome, who the Romans put in charge of saving Rome from barbarian invaders and who, after defeating the invaders, laid down his powers and returned to the farm, long ago faded into antiquity. Leaving the plow to help out in government for a while and then going back to the farm may have been good enough for Cincinnatus, but today’s politicians see Cincinnatus’s decision to return to the farm as a bad business decision. Today, not only does politics pay better than pushing a plow, politics is inside work.

The day of the part-time citizen legislator who served in Congress for a few terms and then went back home to resume a private life and a real job or profession ended for almost all elected politicians over a half-century ago. The current Congress, unlike the Congress of a century ago, now meets all year every year, and new campaigns for Congress and President begin as soon as old ones end. As a selling business, politicians have to be mindful of how to advance their careers. A politician can reasonably ask, if I do not look out for my career, who will. With few exceptions, what a politician believes will advance his career drives what he will do about taxes and other legislative matters—careerism beats out ideology almost every time in the hierarchy of the factors that make a politician tick.

Elections preoccupy all politicians, even those not running, because elections determine which party will control Congress and the presidency, and which party controls Congress and the presidency determines how much political stroke each politician will have. Getting elected costs in the millions for a seat in the House, tens of millions for a seat in the Senate, and many hundreds of millions for a shot at being President. The cost of climbing the ladder continues to grow with no sign of a change in the trend. Paying the cost of surviving and rising in politics preoccupies almost every moment of a politician’s consciousness. Extracting millions from favor-seeking donors, as a fundraiser, and avoiding disappointing them, as a lawmaker, challenges all politicians—disappointed donors cannot be counted on to keep pouring money in an unprofitable venture.

Almost all of today’s politicians obsess with clinging to the rung on the ladder they currently occupy, climbing to the next rung, or, if they fall off the ladder, getting a job either as a lobbyist or in the executive branch. Since success in politics cannot be guaranteed, prudent politicians constantly watch for career alternatives if the public tires of them. For many politicians who either do not seek to climb higher up the ladder in elective politics or who lose and fall off, lobbying is the most attractive and lucrative career alternative, and for other politicians who lose or become bored with dealing with constituents, a job in the executive branch can be just the right tonic.

Regarding lobbying, the bucks in lobbying (particularly for those who are successful) often far exceed the bucks a politician gets for serving in elected office. How strange that in the business of importuning, the importuner makes much more than the importuned—in most other businesses, the reverse applies. For those politicians who resent years of underpayment and lack of appreciation for their service as an elected politician, becoming a lobbyist at an exponential jump in salary can be just the thing. For many representatives and senators who are anxious to escape from the boredom and stress of dealing with lobbyists and constituents, an executive job, particularly a prestigious cabinet position or an ambassadorship, can be appealing to them. For example, it should not be too much to ask for a two-term Senator who has delivered time and again for the President to be awarded a European ambassadorship if the senator pleads his case well enough. If a politician wants an executive job, however, he had best keep the President happy.

Rare is the politician who decides to leave politics and go home to live out the rest of his life like most Americans. Politicians make thousands of legislative decisions, including quite a number that relate to tax matters that affect their careers. Many career advancing decisions come at the cost of favoring the few over the many—the omnipresent contest in the character of each politician between nobility and ambition. How politicians balance advancing their career against promoting the interest of ordinary Americans determines how the many will fare against the few in the tax game.

WHO PLAYS THE GAME?

The Gauntlet

For a tax provision to be adopted, repealed, or modified, the proponents of the provision must persuade a majority of the House and Senate and the President each to approve it. Winning these approvals requires surviving a legislative gauntlet by side-stepping pitfalls, hurdling obstacles, and avoiding traps that would intimidate Indiana Jones, and by persuading many politicians along the way to go along. Persuading is a pleasant word that encompasses every behavior from enticing to bludgeoning.

Imagine the gauntlet as two lines that each zigzag through the standing committees of each of the House and Senate, then each respective line runs to the floor of the House and the Senate, then the House line and the Senate line each runs to a joint House/Senate conference committee, and then the House line runs back to the floor of the House and the Senate line runs back to the floor of the Senate, and, assuming that the full House and Senate each approve the same tax provisions, then the two lines merge into a single line that runs from the Congress to the President. Any tax provision that falls prey to any trap along the gauntlet perishes.

Process and personality meld to rule the tax game. Congressional rules and the rules of the Republican and Democratic parties’ respective caucuses in Congress dominate the process, and individuals who have access to money and knowledge and who have the moxie to grab and exploit power dominate as personalities. As a warning, those who possess a generous quantum of moxie do not always possess an equal quantum of concern for treating ordinary taxpayers fairly. At each point along the gauntlet, each ordinary taxpayer should (but does not) ask who is looking out for them.

Divided Government

Divided government, the control by different parties of the presidency and one or both of the Senate or the House, compels the two parties to compromise in playing the tax game. When a state of divided government exists, no tax legislation will make it through the gauntlet unless each party agrees, and the price for agreement is compromise. Divided government can protect those Americans who are not ideologically inclined from the faith-based tax doctrines of each of the parties. In this respect, Republicans and Democrats each reason that if I cannot get my pet tax provision then you cannot get yours, and so each party decides to work things out independently of any ideological agenda.

Unfortunately, divided government on occasion can also create the worst of all worlds in the tax game. In this respect, Republicans and Democrats may decide to split the baby in half by agreeing that each party can include their ideological favorite tax provisions—an unholy deal in which each party agrees to take a few of their pet provisions. Sometimes divided government protects the interest of the ordinary taxpayer in the tax game, but sometimes it makes things worse. As with most things in life, nothing is perfect.

Congress

Each November in each even numbered year, the voters elect all members of the House and one-third of the members of the Senate. Because only one-third of the Senate changes with each election, experts refer to the Senate as a continuing body whose rules and organization remain in place regardless of each election. But, because the entire House is elected every other year, the House is not a continuing body, and therefore, it must adopt rules and organize afresh after each biennial election.

When each Congress convenes, the House by majority vote adopts its governing rules, but, as a continuing body, Senate rules continue in effect. At the beginning of each congressional session, each party’s caucus meets to organize and determine which members will sit on each congressional committee and which members will chair each committee.

The existing personal income tax has been in the making for over the last half century. Although there have been few changes in House and Senate rules that govern the process, the practices under which the Democratic and Republican party caucuses operate have changed, and those changes have affected how tax legislation becomes law. Congressional rules and party practices are made for dealing with nibbling changes to the tax laws but not structural changes—Congress excels at the tactic of legislating favors for select groups and often fails at strategically addressing major problems confronting all of America.

The House

House rules prescribe each decision point (better described as a potential trap) in the House phase of the gauntlet, and party practices determine which House members line up at each point in the gauntlet. The Speaker of the House, based on the advice of the House Parliamentarian, interprets House rules. A majority of the House elects the Speaker, and the Speaker appoints the House Parliamentarian. Custom and precedent count in interpreting and applying the House rules, but not so much as to prevent politics rising above principle when the occasion invites it.

Under the Constitution, Article I, Section 7, all revenue bills must originate in the House, and under House Rules, formal tax action begins in the Ways & Means Committee—the primary playpen in the House for personalities to work their will on tax legislation. The Ways & Means Committee has exclusive jurisdiction over all tax matters and is the most prestigious committee in the House.

As an example of how the system works, for the 114^th Congress that convened in 2015, there were 39 members of the Ways & Means Committee, 24 of which were Republicans and 15 of which were Democrats. The majority party in the House (regardless of whether it is the Republicans or Democrats) always insists on having a healthy majority on the committee—the ratio of Republicans to Democrats in the entire House was only about 1.15 : 1, but in the Ways & Means Committee it jumps up to about 1.41 : 1. Whichever party is in control of the House always maintains a wide majority on Ways & Means to insure that one or two mavericks on their own side of the aisle will not have the power to frustrate the party’s will.

In each session of Congress, the majority party in the House prescribes the rules which determine how the House is to be organized in terms of, among other things, what the committees and their jurisdiction are to be, the membership of the committees, and the House’s administrative budget that controls staffing. The majority party sets the legislative agenda, has more staff than the minority party, has many more perks, and, therefore, can raise political contributions much more easily than the minority—it is better than good to be the controlling party, and it is horrible to be the minority party. Because being in the minority in today’s House admits impotence, the leadership of both parties obsess with, in the case of the majority, clinging to control, and in the case of the minority, grabbing control. After all, how can a politician do the Lord’s work if he or she is not there to do it? The means used by each party to win control might make the Lord blush and frequently require that the Lord’s work wait.

Inside the Ways & Means Committee, committee rules vest vast powers in the chairman. The chairman decrees if and when there will be tax legislation in each congressional session. And, if the chairman decides there is to be tax legislation, he chooses what provisions are to be included in the first draft for consideration by the full committee and when to bring the legislation to the committee for consideration. For taxpayers seeking a change in the tax laws, no one is more important to get on their side than the chairman of Ways & Means, and no one knows this more than the chairman. Like the old adage about children, new members of the committee are expected to be seen and not heard. Given the partisanship between Republicans and Democrats in the House for the last generation or so, the members of the minority party are barely tolerated, but, if they are good, they are sometimes thrown a bone, albeit one with little flesh on it. After the chairman unveils his draft, the full committee has a crack at offering amendments in what Belt-Way insiders call the chairman’s mark. Once Ways & Means completes the amendment process, the committee by majority vote reports the legislation to the full House.

The full House cannot consider proposed legislation reported from any committee, including Ways & Means, unless the Rules Committee by a majority vote clears it for consideration under a special rule. Each special rule prescribes, among other things, when the full House will consider proposed legislation, how much time will be scheduled for debate, and whether amendments may be offered on the floor of the House. With respect to tax legislation, the Rules Committee almost always adopts a special rule, aka closed rule, which forbids floor amendments. As a result, the full House has the choice of taking or leaving the proposed legislation as reported out of Ways & Means. Forbidding the full House from changing tax legislation on the floor makes Ways & Means the primary arena for the tax game to play out in the House. If a taxpayer cannot get his or her provision in the tax legislation reported out of Ways & Means, then the taxpayer has probably lost the tax game for that session. But, getting a provision in the Ways & Means version of proposed tax legislation by no means assures ultimate success.

Once the full House adopts proposed tax legislation, it must be reconciled with any proposed legislation approved by the Senate that differs from that approved by the House. Rarely do the House and Senate agree on proposed tax legislation. All differences between bills approved by the House and the Senate, respectively, must be reconciled in a conference committee composed of representatives of the House and Senate. House members of the joint conference committee are appointed by the Speaker upon the recommendation of the chairman of Ways & Means. The chairman of Ways & Means always serves on conference committees and has a big say in who else does. Rarely in today’s House do members of the minority party serve on a joint conference committee.

House Leadership

Tax legislation depends more on the interplay of personalities in interpreting and manipulating the rules than on the rules themselves—generally, rules yield to the clever, particularly when the stakes are as tempting as the tax laws. The top leaders of the majority party in the House are the Speaker, the Majority Leader, and the Majority Whip, and for the minority party, the Minority Leader and the Minority Whip. Over the last generation or so, party politics has been working to transform the types of personalities who play the tax game in the House from those who are relatively independent, secure, and non-ideological to those who are relatively dependent, insecure, and ideological.

Until the latter part of the last century, seniority ruled the House. Since the 1970s, each party, to a greater or lesser extent, diluted the power of the seniority system, made its members more or less toadies of their party’s caucus, and almost completely cleansed itself of those who lack their party’s ideological purity. These actions have taken place in each party’s caucus acting through the party’s elected leadership.

A generation ago, seniority was a leading factor for a member getting on a powerful committee such as Ways & Means; parties rarely removed a member from a committee even if he frequently bucked his party’s leadership on important issues; the chairmanship of committees almost automatically went to the most senior member of the party in control of the House who served on a committee; and there was a generous sprinkling of left leaning politicians in the Republican party and right leaning politicians in the Democratic party. Neither party’s caucus exercised much discipline over their members.

In today’s House, each party’s caucus, acting through its leadership:

• screens members to make sure that if a member is put on a committee the member will stick to the party line,
• will yank a member off a committee if the member strays too far from the party line,
• selects the chairmen of committees (largely independently of seniority) based on whom the leadership believes will raise the most campaign funds for the party, and
• makes life uncomfortable for those members who are not sufficiently ideologically attuned.

On top of these evolutions for some and devolutions for others, both the Republican and Democratic leaderships in the House have set up “leadership PACs” (short for political action committees) in an effort both to raise campaign contributions and control which members advance in the House. Party leaders organize PACs under the campaign finance laws for the purposes of soliciting, accepting, and dispensing political contributions in an effort to elect as many Republicans to the House as possible. For the most part, Republican leadership PACs have raised considerably more money than Democratic Leadership PACs. Leadership PAC money fuels the election of like-minded candidates that are intended to strengthen the party’s position in the House.

A great way to ascend to a leadership position or committee chairmanship is for a member to raise big money for a leadership PAC. Big money for Congressional elections, most notably for members of the Ways & Means committee, inevitably comes from lobbyists and special interests, not the little guy. The message for those who aspire to become the chairman of a committee in a Republican controlled House: forget about learning Robert’s Rules of Order and reading policy papers and instead learn how to shake the money tree.

No member of any Congressional committee is better equipped to shake the money tree from taxpayers all over America than the chairman of Ways & Means. Political contributors cannot justify wasting precious campaign funds on a junior committee member. Contributors get the most bang for their buck by funneling money to those who can get something done, and no one gets things done better on tax matters than the chairman.

In the previous generation, a typical chairman of Ways & Means or the Rules Committee was a member who was elected from a safe district, had been around for a long time, knew where all the bodies were buried, had seen Speakers and other party leaders come and go, became chairman by hanging around the House longer than his fellow members on the committee, knew that the seniority system would protect him from losing his chairmanship, frequently worked with members across the aisle to get bipartisan legislation enacted, paid little attention to his party’s leadership or caucus in fashioning legislation, and spent little if any time raising funds for his party. No chairmanship better epitomized how the old seniority system worked on Ways & Means than that of Wilbur Mills who dominated the committee for the better part of a generation.

As left-leaning members left the Republican party and right-leaning members left the Democratic party, each party’s caucus has become more ideological and intolerant of a bunch of old gaffers running their committees much like feudal baronies. Over the last 20 years or so, the party caucuses have purged the old gaffers from committee chairmanships and replaced them with younger members who readily adhere to their party’s line, support their party leadership’s legislative agenda, pay at least as much attention to political fund-raising as to legislating, know that, if they oppose the party’s leadership on any matter of consequence, they can lose their chairmanship, and rarely work with members across the aisle on a bipartisan basis.

The House and Committee rules grant broad powers to the chairmen of Ways & Means and the Rules Committee, but in today’s House, it is the party’s caucus and leadership (for those interested in history they should read about Joe Cannon’s House in the early 20^th century) that, in large measure, determine how these committees will be run and what legislation they produce. Before the chairman of Ways & Means decides to initiate tax legislation, he is much more likely than his predecessor of 30 years ago to touch base with his party’s leadership on when and what to bring up in a tax bill. If the chairman gets the go ahead from his leadership, it is likely that the majority members on Ways & Means will go along. If they do not, some may be invited by the leadership to serve on another committee.

Swapping a seniority model for a party loyalty model has resulted in young adventurers, who can be relied on by their party’s leadership to adhere to party policy and soil their hands in party sponsored fundraising, replacing the old gaffers, who believed that they could legislate pretty much any way and with whom that they wanted and who did not bother themselves much with party politics. The Republicans, much more than the Democrats, have moved away from the seniority model by term-limiting the chairmen of their committees in both the House and the Senate. As with most things, some think this is good; some do not; and some see it just as different. Term-limiting a chairman, however, eats into his or her power to persuade and/or intimidate the members of their committees and the interest groups who deal with them. While term-limiting a chairman is a loss for the chairman, it is a gain for the party’s leadership who gets to appoint chairmen.

Tax preferences have thrived under both the seniority model and the party loyalty model, and, under both models, almost all tax preferences have been crafted to benefit the well-heeled. Neither model promotes the national interest over narrow interest. The seniority model has resulted in a modicum of bipartisanship between the political parties, and the party loyalty model has resulted in all but eliminating the prospect for bipartisanship.

Neither the House leadership nor the chairman of Ways & Means can represent America as a whole. A single district elects the Ways & Means chairman, and, therefore, the chairman cannot credibly pretend to represent the national interest. The party leadership, moreover, is responsible only to a majority of the members in their party, not the majority of Americans. Given the social, cultural, ethnic, political, and economic diversity of America, neither the Republican nor the Democratic party leadership nor any Ways & Means chairman can be expected to fairly balance the interest of all Americans.

Inevitably, tax provisions that make it through the House phase of the gauntlet will cater to those with special economic and tax-related interests over the national interest and the interests of the ordinary taxpayer.

The Senate

As with House rules, Senate rules prescribe each decision point in the Senate phase of the gauntlet. With respect to who will fill leadership posts in the Senate, who will serve as the chairmen of Senate committees, and who will serve on Senate committees, the Democratic caucus in the Senate determines for Democrats and independents who participates in the Democratic caucus, and the Republican conference in the Senate determines for Republicans and independents who participates in the Republican conference. Any Senator in either party who wanders too far off their party’s reservation in terms of policy risks losing their committee membership or chairmanship any time a majority of their fellow caucus or conference members wish it.

The Presiding Officer of the Senate (the Vice President) interprets Senate rules based on the advice of the Senate Parliamentarian who is appointed by a majority of the Senate. Traditionally, the Senate Parliamentarian renders non-partisan advice. Although a majority vote of the Senate may overrule any ruling of the Presiding Officer, it rarely does. Generally, custom and precedent seem to count a bit more to the Senate in interpreting and applying its rules than they do in the House. Unlike the House rules which provide few opportunities for individual members to affect legislation, Senate rules make it possible for individual senators, even junior senators, to significantly affect legislation.

Formal tax action in the Senate begins in the Finance Committee—the Senate analogue of the House Ways & Means Committee. The Finance Committee has exclusive jurisdiction over all tax matters and is the most prestigious committee in the Senate. For the 114^th Congress that convened in 2015, there were 26 members on the Finance Committee, 12 of which were Democrats and 14 of which were Republicans. Unlike the Ways & Means Committee which always maintains a wide margin of members of the majority party, the majority party maintains a margin in the Finance Committee roughly comparable to membership in the entire Senate. As a result, one or two mavericks, among the majority party membership on the Finance Committee, can force a change in the legislation that is reported out of the committee.

The controlling party in the Senate lacks the power of its counterpart in the House to set arbitrarily the legislative agenda. A maze of arcane parliamentary procedures empowers individual senators to hold Senate action hostage to compromise. Two big reasons account for why the minority can prevent the majority from running roughshod—first, each senator has the right to talk legislation to death unless cut off by the full Senate, and second, each senator may offer floor amendments to majority-backed legislation that can slow the legislative process and divert the majority from its legislative goal.

Most Senate parliamentary procedures that make delay an effective tactic for members of the minority party stem from the right of each senator to take the Senate floor and talk until, in some instances, a majority, and in other instances, 60 senators, vote to close debate—in the trade, talking is known as “filibustering”, and closing debate is known as “cloture.” Since each Senator prizes the right to throw a monkey wrench in the works by filibustering, fear of losing that right discourages each senator from invoking cloture too easily. The result: a small minority of senators can slow Senate action to the point that the majority can be forced into either compromising or getting nothing done.

The right to offer floor amendments arms each senator with a dual-use weapon that can both slow down a majority of senators bent on forcing legislation through and drive a wedge among members of the majority. Every time an amendment is offered by a member of the minority and debated, the process steals time away from the majority’s legislative agenda. And, if a minority member offers an amendment to majority-backed legislation that is supported by some in the majority, but opposed by others, the amendment may split the majority and torpedo the majority-backed legislation.

The Senate, because of its rules, differs from the House in that a minority (even a small minority) can thwart the majority’s attempt to ram through its legislative program. In the Senate, unlike the House, compromise between the majority and minority rules in most instances. Even though being in the minority is not as bad for members of the Senate as it is for members of the House, it is still a bummer, and minority Senators nevertheless obsess with gaining the majority.

Inside the Finance Committee, its rules vest great powers in the chairman, but not quite as much as the chairman rules in Ways & Means. As with the chairman of Ways & Means, the Finance Committee chairman pretty much has the power to decide if and when there will be tax legislation in each congressional session. However, unlike the Ways & Means chairman, the chairman of the Finance Committee usually consults, not only with his Majority Leader but also with the ranking member of the minority party, before taking action. Since the chairman of the Finance Committee knows that his party probably cannot impose its will on the minority, the chairman usually attempts to make a deal with enough members of the minority to be assured of getting committee approval. Almost always, getting the ranking member of the Finance Committee on the same page as the chairman will assure that the chairman’s proposals will make it through the committee, and if the chairman cannot get the ranking member on board, there is likely to be blood on the floor, first in committee, and later, on the floor of the Senate. Gaining the approval of the ranking member requires that the chairman compromise. Unless the bone thrown by the chairman to the ranking member has some meat on it for the minority members, the minority will resort to its parliamentary bag of tricks to stymie the majority-backed proposal.

Even though the chairman of the Finance Committee lacks the power of the chairman of Ways & Means to shape tax legislation to suit himself and his party, the chairman of Finance still possesses significant latitude that enables him to include many significant tax provisions in any tax legislation reported out of the Finance Committee. As with Way & Means, if a provision fails to make it out of the Finance Committee, it falls prey to the gauntlet. Once the Finance Committee approves draft legislation, it goes to the floor of the Senate and is considered when the leadership of the controlling party, most notably the Majority Leader, schedules it. The Majority Leader usually consults with top Senators in his own party before picking an opportune time to submit it for floor consideration.

Contrary to the House, it is not unusual for major amendments to tax legislation to succeed on the Senate floor. While Ways & Means shapes tax legislation in the House, with little input from the full House, the full Senate plays a major role, relative to the Finance Committee, in shaping tax legislation in the Senate. More than occasionally, a few Senators, who do not serve on the Finance Committee, will muster enough support on the floor to amend the legislation reported out of committee.

Once the full Senate adopts proposed tax legislation, it must be reconciled with House approved legislation that differs from that approved by the House. Rarely do the House and Senate agree on proposed tax legislation. All differences between legislation approved by the House and the Senate, respectively, must be reconciled in a joint House/Senate conference committee. Senate members of the joint conference committee are appointed by the Majority Leader upon the recommendation of the Finance Committee chairman who always serves on conference committees. Rarely in today’s Senate do members of the minority party serve on a joint conference committee.

Senate Leadership

The top leaders of the majority party in the Senate are the Majority Leader and the Majority Whip, and for the minority party, the Minority Leader and the Minority Whip—all of whom are elected by a majority in their party’s caucus or conference. It is not unusual for second term Senators, who are relatively junior to the majority of senators in their parties, to become leaders. The seniority system that once dominated the Senate, as well as the House, has faded in importance over the last generation, but not quite as much as in the House.

All things being equal, a senior senator can still get a committee assignment or chairmanship over a junior senator, and except in unusual circumstances, a committee chairman will not be removed from a chairmanship because of getting crossways with some members of the Senate caucus or conference and leadership. Each senator tends to be respectful of other senators’ rights in the hope that other senators will be respectful of their rights—put another way, you scratch my back, and I will scratch yours. Notwithstanding all of this mutual respect, if a senior senator wanders too far off the reservation, the caucus may decide that enough is enough and deny the senior senator a chairmanship in favor of a junior senator. Unlike the House, the Senate leadership, particularly for the Democrats, does not insist (to the extent that the House does) that would-be chairmen of committees join leadership PACs and shake the money tree for the party. Seniority, as the test for chairmanship, relieves a would-be chairman from having to do as much fund raising as would be required if the chairmanship were determined by the party leadership. As far as old gaffers are concerned, they get a better deal in the Senate than the House. Many old gaffers in the Senate still retain lots of power.

As with surviving the House phase of the gauntlet, tax provisions that make it through the Senate gauntlet almost always favor those with special economic and tax-related interest over the national interest and the interest of the ordinary taxpayer. The Senate participants in the gauntlet, as with the House participants, inevitably represent narrow parochial economic interest. America as a whole does not elect either senators or representatives. Voters in individual states and congressional districts elect senators and representatives, and these senators and representatives reflect the views of their voting constituents.

The cultural, educational, and economic background of the voters in each state and congressional district vary considerably as do the types of businesses engaged in commerce, industry, and agriculture. The interests of economically prosperous and highly educated voters who are employed by successful high-tech companies often clash with the interests of voters who are poor, not well educated, and employed by aging industries just hanging on to survive. The few senators who participate in the gauntlet cannot possibly fairly represent the interests of all Americans. Inevitably, the interests of many Americans will not be represented as tax legislation works its way through the gauntlet.

The House/Senate Conference Committee

The House/Senate Conference Committee wields great power because, in resolving differences between House and Senate versions of tax legislation, the conference committee can junk much of what is in each version and start all over if it wants. The chairmen of Ways & Means and the Finance Committee, in consultation with the leadership in the House and Senate, take the lead in conjuring a compromise. The conjuring plays out behind closed doors and is not subject to public scrutiny. Brokering interest for interest among the members of the conference committee, with a view to what will pass on the floor of the Senate and House, continues until a deal is struck. If no compromise can be conjured, tax legislation will languish indefinitely in the conference, and there will be no tax legislation that session.

At each point in the congressional gauntlet in which a politician has to decide what to do about tax legislation, the politician asks himself what do the people I care about think I should do. To almost all politicians, the people they care about are the people who determine their political futures. Since each congressional politician is elected in a state or district that comprises only a small part of America, tax legislation coming out of Congress cannot possibly represent the national interest—tax legislation can only reflect the views of those who determine it.

In tax matters, encouraging as many ordinary Americans who are willing to work to become as prosperous as possible and not shifting the tax burden from one generation to the next are the national interest. Instead of addressing the national interest, each biennial tax game involves narrow groups of self-interested taxpayers jockeying with each other to avoid paying taxes. Permitting some select groups of taxpayers to shed their tax burden usually comes at the cost of making ordinary Americans pay more than is necessary and/or shifting the tax burden from the current generation to the next. Regardless of whether the seniority model or the party loyalty model controls, or whether politicians of the right or left control in Congress, what is good for those who influence the politicians who staff out the congressional gauntlet beats out what is good for America in all but the rarest of instances.

The President

If tax legislation makes it through the congressional gauntlet, the President must approve it for it to become law. A presidential veto of tax legislation kills it. As stewards of the national economy, presidents develop and pursue their own agenda for tax legislation. The veto power coupled with the President’s power to persuade makes the President the dominant player in the tax game.

The President can inject himself into any phase of the tax game that he or she thinks will increase their chance of getting what they want. Sometimes the President may want a provision added to the agenda, and sometimes the President may want a provision taken off the agenda. By letting Congress know early in the process that its agenda is unacceptable and will result in a veto, the President can force Congress to revamp its tax agenda. Conversely, if the President wants something included in tax legislation, he can use his powers of persuasion to induce Congress to enact his agenda.

If the President wants to play the tax game, the President becomes the 500-pound gorilla in the arena. Mindful that many tax provisions can anger taxpayers, presidents not too infrequently conclude that to play the tax game is to lose, and so they leave it to Congress to do unpleasant things. Presidents find that taking bad provisions out of a tax bill is less fun than pulling weeds and, on top of that, no one appreciates that the weeds are gone.

The President has unique tools available to him or her to persuade the public and Congress to his point of view.

First, regarding the public, the President can command media attention to assure that he or she gets their message out the way they want to on their own terms. No other politician can match the power of the President to dominate public debate on a tax issue.

Second, regarding Congress, presidents control a vast arsenal of weapons that are effective in influencing and, if necessary, bludgeoning senators and representatives into seeing tax matters their way. Just a few of these weapons include the power to appoint a congressman’s ne’er do-well son-in-law to a good federal job, include or exclude a congressman’s pet local project in his budget, appoint a congressman’s longtime chief fundraiser to an ambassadorship, invite a congressman having a hard time getting reelected for a photo op, raise campaign funds for a congressman’s reelection campaign, and discourage or encourage an opponent in a party primary from running against a congressman.

Given the President’s powers to persuade, most presidents can entice or intimidate enough senators and representatives, particularly members of their party, to see things their way. Presidents rarely lose a vote in Congress by one or two votes.

America elects the President to watch out for the interests of all Americans, as opposed to congressmen, who are elected by states and districts to look after the interest of their constituents. For the most part, ordinary Americans can expect to get a better break from the President than the Congress. In politics, ordinary Americans pay more attention and have more to say in electing the President than in electing their Representatives and Senators. Most ordinary Americans cannot name their representatives and senators but can name the President. Given the limited attention span of most ordinary Americans when it comes to politics, presidential elections attract the interest of more ordinary Americans than do congressional elections.

Among politicians, the President has the best claim to representing the national interest. But, a series of razor thin presidential elections, where the winner usually gets around 50% and sometimes less, tarnishes presidential claims to representing the interest of all Americans. America has two electorates, a presidential electorate and a congressional electorate, and the presidential electorate comes much closer to reflecting the views of most Americans than the congressional electorate. In the 2012 presidential election, 56.5% of all voting-age Americans voted with only 38.0% of 18-24 year olds voting while 71.1% of 65-74 year olds voted. In the 2014 congressional election, 38.5% of all voting-age Americans voted with only 15.9% of 18-24 voting while 59.1% of 65-74 year olds voted. With a vastly larger electorate voting for the President than for senators and representatives, the President has a compelling argument that he or she better represents the national interest than Congress.

Presidential politics frequently demand that the President prefer the interests of some Americans over others, and in this world, other than in exceptional times, the interests of ordinary Americans often yield to the interests of extraordinary Americans. Extraordinary Americans are those who, in the mind of the President, command enough money and power to make a difference in an election and are willing to do so. In calm and prosperous times, ordinary Americans tend not to bother themselves with tax matters. Only in tumultuous and precarious times do many ordinary Americans take the trouble to pay attention to how tax laws put a penny in or take a penny out of their pockets.

GETTING IN THE GAME AND STAYING IN THE GAME

Election & Re-Election

Nothing affects a politician’s career more than his relationships—who are his supporters and what they are willing and able to do for him. Without supporters who fork over enough bucks to bankroll a winning campaign, only very few politicians will have any chance to climb the political ladder. In theory, politicians should be most responsive to advice from their constituents who vote because voters can end a politician’s career. But, theory and reality part ways in that more often than not it is the politician who advises the voters instead of the voters advising the politicians. A politician may have done a lousy job in representing most of his constituents, but if the constituents do not know it, the politician escapes voter wrath—many politicians depend on voter ignorance.

If voters had perfect knowledge about what a politician does to promote or frustrate their interest, voters would know whether to further or terminate the politician’s career. Since there is no such thing as perfect knowledge in politics, much of what voters know about their politicians stems from what they learn in campaigns. From the standpoint of an incumbent politician (left and right), campaigns should re-elect the incumbent, and from the standpoint of the challenger (left and right), campaigns should elect the challenger. Incumbents and challengers do not look at campaigns as opportunities to educate voters on matters of high public policy—they look at campaigns as an exercise in winning. In campaigning at its best, politicians exchange vacuous slogans about what each thinks will turn on their voters, and in campaigning at its worst, politicians lie about each other on any matter that they think will work. As a rule of thumb, voters listening to campaign propaganda would be well-advised to believe 95% of what politicians say about their opponents and 5% of what they say about themselves.

Politicians spend vast sums in fabricating and circulating their campaign message, an exercise in myth-making. Highly paid hired guns, political marketing experts, concoct the message and oversee circulating it to the right markets. If a politician has a record contrary to the interests of a majority of his voting constituents, a carefully devised campaign can divert voters from bad news to good news and discredit the opponent. What the hired guns think will sell at any moment drives what the campaign message will be. If a politician challenges special interest tax laws, his opponent would likely charge him with being soft on crime, terrorism, gay marriage, flag burning, and who knows what else, and, if everything else fails, character assassination almost always turns the trick. Every consultant knows that voters will not vote for a naïve, unpatriotic, heathen with bad character.

Political experience bears out that, if a campaign throws enough mud against the wall, enough will stick to do the job. Since mud is a limitless commodity, the trick is to amass enough resources to be able to hurl it at the velocity and in the quantities as required. Mud-hurling capacity, then, often decides campaigns—he who hurls the greatest volume of the stickiest mud almost always wins. With respect to political campaigns, few voters question anything said in the media if it is said simply enough, frequently enough, and not denied. As an excuse for lack of attention, most ordinary Americans are too busy eking out a living in a dog-eat-dog global economy to pay much attention to political palaver.

Financing Campaigns

Mud-hurling capacity depends on money to buy propagandists and the media to distribute propaganda. Politicians quickly learn how to increase their mud hurling capacity or they get in a different business. Campaign funds flow from two sources—one a trickling stream and the other a raging torrent. Contributions of less than $200 made by ordinary individuals account for the trickling stream, and contribution of over $200–ranging from just over $200 made by better off individuals into millions of dollars made by the super rich—account for the raging torrent. For perspective, in the 2014 congressional elections, the total cost of the congressional races was approximately $3.8 billion of which about one third came from the trickling stream (contributions of less than $200) and about two thirds of which came from the raging torrent (contributions in excess of $200). Of the contributions in excess of $200, a huge amount came from those in the top 1 tenth of the top 1 percent.

Given who contributes to campaigns, it is easy to understand why the after-tax income of the top 1% has grown faster than their pre-tax income.

The stream trickles because only ordinary Americans contribute to it, and most ordinary Americans spend little on politics either in time or money. What a shock to think that most ordinary Americans had rather live their lives—work, have some family time, go to the movies, watch a football game, take a vacation, fix up their homes, and pursue a hobby—than listen to politicians or study tax policy. While it is understandable that ordinary Americans spend their time and money on things other than politics, there is a price to pay.

Ordinary taxpayers, the less well-off, should walk a few miles in the politician’s shoes and then ask themselves, as if they were the politician, a few questions and imagine the answers, as follows:

Q. Why should I pay much attention to the ordinary taxpayer?

A. Hard to figure.

Q. What has he done for me lately?

A. Nothing.

Q. What is he likely to do for me in the future?

A. No money, and not even a vote.

Q. In the last session of Congress, I sent the ordinary taxpayers a mail-out explaining why they should get involved in a tax bill that was shafting them, and what did they do?

A. They all blew it off.

Q. When is the last time an ordinary constituent took me to lunch at the Palm and told me what a great job I am doing?

A. Never.

Q. What is the chance the ordinary jokers are going to vote for me next time?

A. Most only vote about half the time if that much. Suppose it snows next November, I will bet most stay home.

Q. Last time us Congressmen sucked it up and voted ourselves a pay raise, what did ordinary folks say?

A. They squawked for months, and the ingrates cut my victory margin to less than two points in the last election.

Q. How can I go home and explain to my wife, who constantly complains about not having enough money to send young Johnny to Princeton, that I have to look out for the ordinary taxpayers when it means getting crossways with the lobby and maybe drawing a big money-backed opponent in my next election?

A. I cannot.

Given ordinary taxpayer’s insensitivity to the politician’s problems, it is a wonder that the politician does anything for them. Not only do ordinary taxpayers not play the tax game, ordinary taxpayers do not even know there is a tax game.

While a trickling stream will not generate much power, a raging torrent will. What fool would build Hoover Dam on a creek instead of an overflowing river? For a politician in the chase for the big bucks necessary for a winning campaign, he or she need look no further than the raging torrent, the flood of campaign money largely controlled by lobbyists and extremely wealthy individuals. Before evaluating the effects of raising campaign funds, it is important to understand how lobbyists fit into the tax game and who they are. Politicians and lobbyists understand each other because lobbyists, just like politicians, sell for a living, and on top of that many lobbyists are former politicians. Lobbyists sell their clients’ interests to politicians, and if they believe a politician is effective, they sell the politician to their clients who contribute to political campaigns.

In today’s politics, lobbying now requires framing messages that will change minds both with the voters and legislators, an exercise more in public relations than in influence peddling. Lobbyists either work for or are hired to represent businesses and trade associations that are big and rich enough to afford them. Businesses (in all phases of commerce, industry, and agriculture and the professions) band together to create trade associations for the purpose of sharing information and pursuing common goals. Because getting and keeping tax preferences is a primary common goal, trade associations play the tax game big time. Dues paying businesses support trade associations. Since the personal and corporate income taxes pervasively affect all businesses of any consequence, naturally these businesses and their trade associations play the tax game. What a shock that a business will fight to get or keep a tax preference—businesses are in business to make money, and saving taxes makes money. Not only do the owners of businesses profit from saving taxes but the jobs of ordinary Americans employed by these businesses are made more secure. This is a blatant example of businesses increasing their profits by winning in the world of politics instead of markets.

Although lobbyists come from all backgrounds, law, business, public relations, advertising, and politics kick in the most. Like political consultants, lobbyists hire out as hired guns for those who can pay. Unlike the hired guns in the Old West who packed heat for firepower, lobbyists frequently get their firepower from trading on relationships, like former congressmen who know how the legislative process works, who the key lawmakers are, and how to influence them. Effective lobbyists can raise substantial campaign funds by going to their clients and businesses allied to their clients for money to contribute to a politician that they believe can and will deliver. Lobbyists regard a politician who cannot or will not deliver as a bad investment. In the lobbying business, a lobbyist who makes a bad investment sins against his clients. Regardless of some attempts to demonize lobbyists, all should realize that most lobbyists are like the rest of us, and if we were in their place, we too would most probably act like them. Capitalism dictates that business be profitable, and lobbying is just another business subject to the dictates of the profit motive.

Like in other businesses, some lobbyists make a few bucks, and some make an awful lot of bucks—inevitably some businesses make more money than others. Since the stakes are particularly high in the tax game, generally only high-end, highly paid lobbyists are hired to play. Not only is there nothing wrong with being a hired gun for business, but businesses depend on hired guns to promote their interests on important matters, and taxes are an important matter. In the world’s leading capitalist economy, any business that fails to do what it takes to succeed, including playing the tax game to win by rounding up the best hired gun available, should be fired.

What criminal defendant, particularly one who is guilty and rich, would skimp on hiring the most effective criminal defense attorney he can afford? So why would businesses or trade associations hire a cheap, ineffective lobbyist? More than a little truth can be found in Calvin Coolidge’s 1920s aphorism that “business is the business of America” and, in an aphorism often attributed to “Engine” Charlie Wilson, that “What’s good for General Motors is good for America.” For those few who did not know, Engine Charlie Wilson was the CEO of General Motors who resigned to become President Eisenhower’s Secretary of Defense. These aphorisms, however, omit another truth, namely that American business can prosper while the living standard of millions of ordinary taxpayers stagnates or declines. As proof, for quite a while GDP has grown at a healthy rate, but median income has not—a rising tide may lift all boats, but a rising GDP does not necessarily raise the median income for Americans.

If the gulf between the profitability of business and the well-being of ordinary taxpayers widens too far, social friction will grow to the point that it will threaten almost everyone’s economic, social, and political well-being (remember the 6^th century B. C. Athenian Social War). The preoccupation of most ordinary taxpayers with social issues, rather than tax issues, proves that most taxpayers are not yet sufficiently alarmed about their economic well-being to follow what is going on in the tax game. If the tax game were played for the benefit of everyone, business and ordinary taxpayers would both be better off in the long run. If a frog had wings, he would not bump his butt.

Business should not be faulted for playing the tax game to win even if it means ordinary taxpayers lose. It is not businesses’ responsibility to look out for the interests of ordinary taxpayers; businesses’ responsibility is to look out for their own interest. It is the job of politicians to look out for the ordinary taxpayer, but it is hard for them to find a reason to do so much of the time. Since lobbyists work for businesses, any lobbyist who lets his or her concern over the fate of the ordinary taxpayer get in the way of getting his or her client the best deal he or she can from the politicians, sins against his or her client. Although many ordinary taxpayers work for businesses that play and win at the tax game, most do not. Those ordinary taxpayers who work for businesses that either do not play the tax game or lose also lose.

Each lobbyist is keenly aware of what goes through a politician’s mind as the politician assesses whether to support a yummy tax preference being pushed by the lobbyist that uniquely prefers the lobbyist’s client, or oppose it because the tax preference shifts more of the tax burden onto the ordinary taxpayer without helping any business except the lobbyist’s client. Unlike the ordinary taxpayer who does not bother to imagine what it is like to walk in the politician’s shoes, lobbyists do. An effective lobbyist has the imagination to put himself in the politician’s place and anticipate the questions a politician might ask himself about his relationship with the lobbyist and what the answers should be if the lobbyist is to succeed, as follows:

Q. Why should I pay much attention to the lobbyist pitching his deal to me?

A. He got his client to contribute $50K in my last campaign.

Q. What has he done for me lately?

A. He told me that he heard there is a leadership position opening and told me that I should run for it; it was also thoughtful of him to arrange that outing for me and my wife to San Francisco last spring; the fact that it coincided with my anniversary killed two birds with one stone.

Q. What is he likely to do for me in the future?

A. He told me that he thinks he can raise $100K in my next campaign, particularly if his client has good luck in the next congressional session.

Q. When is the last time he took me to lunch at the Palm and told me what a great job I am doing?

A. Yesterday; and he’s invited me to Duke Ziebert’s (the steaks are better than those at the Palm!!!) next Wednesday. So far, he is the only guy that appreciates that it was my parliamentary tactic that helped his tax provision squeak through committee last July.

Q. Last time us congressmen sucked it up and voted ourselves a pay raise, what did he do?

A. He and his clients told civic groups that Congressmen were woefully underpaid and deserved a raise; they even paid for a few media spots explaining to the public why the pay raise was long overdue.

Nobility often asks too much of a politician. Most ordinary taxpayers, were they in the politician’s shoes, would have as much trouble justifying to their wives, as the politicians do, why they should side with the oblivious ordinary taxpayers over the understanding lobbyists. In fact, given the callous disregard by ordinary taxpayers of the problems faced by politicians, it is a wonder that any politician ever watches out for their interest. For the politician out to increase this mud-hurling capacity and who likes to be comforted, lobbyists are a much better bet than ordinary taxpayers.

RULES OF THE GAME

Special Interest vs. National Interest

Each biennial tax game begins with various supplicants—those seeking tax preferences that uniquely benefit them—buzzing around the chairmen of Ways & Means and the Finance Committee and whispering in their ears that if their pet tax preference is not enacted, the American economy will crash. No politician occupying any perch along the legislative gauntlet has any significant incentive, other than nobility, to make sure that each piece of proposed tax legislation serves the national interest as opposed to merely dishing out a special benefit to its supplicants. Usually it is easier for a politician to support an intensely lobbied tax preference than to oppose it in the national interest.

The supplications could come from lobbyists representing the insurance industry telling the politicians that the insurance industry will be devastated unless the “special alternative tax on small property and casualty insurance companies” is not made more generous; or lobbyists representing the agriculture industry telling the politicians that the fate of the family farm depends on expanding the “treatment of loans forgiven for solvent farmers”; or lobbyists representing the coal industry telling the politicians that energy independence will be threatened and coal mining jobs will be lost if something is not done to expand the “capital gains treatment of royalties on coal”; or lobbyists representing the transportation industry pleading that the shipping industry will grind to a halt if the “deferral of tax on shipping companies” is not increased; or umpteen lobbyists representing any number of businesses telling the politicians that if their clients do not get a tax break, the economy will falter and unemployment will skyrocket.

Amidst this swarm of lobbyists, no one pleads the case of the ordinary taxpayer to the chairmen of Ways & Means and the Finance Committee that the standard deduction—something that would benefit the ordinary taxpayer—should be increased. If the addition or expansion of a tax preference survives Ways & Means and the Finance Committee, it has a fighting chance to make it all the way across the goal line; but if it does not, it will most likely have to wait for the next biennial tax game. There is no chance of a provision not included in the Ways & Means reported legislation winning inclusion on the House floor. Although floor amendments to the legislation reported out of the Finance Committee sometimes succeed, rarely do these amendments help ordinary taxpayers. Usually, the types of tax preferences that make it on the floor benefit a select group for businesses that have enough clout to attract a number of senators.

Once tax legislation arrives at the joint conference committee, the serious deal-making begins. The representatives from the House and Senate, respectively, are forced to balance keeping their pet provisions in the package while having to sacrifice those provisions that are expendable—the process of separating the seemingly sacred cows from the truly holy cows. The bargaining centers around what each of the players believes will produce a package that will pass on the floor of the two houses and escape a presidential veto.

If the President fails to speak up for the ordinary taxpayer in conference, it is a good bet than no one else will. All the congressional players are so fully invested in satisfying the supplicants whose tax preferences have made it to the joint conference committee that they have little time to think about the ordinary taxpayer. All congressional politicians, senators as well as representatives, represent bits and pieces of America, but none represent America’s national interest. Even presidents, especially those who are concerned about maintaining the support of their ideological political base, rarely rush to the aid of the ordinary taxpayer.

Strange as it may be, despite the fact that the ordinary taxpayer has the potential to wield far more political power in terms of voting strength than any interest group supplicating for tax preferences, the ordinary taxpayer has no one to champion his cause as the tax game plays out. Lesson: potential coupled with ignorance and indifference results in impotence. In the tax game, democracy notwithstanding, a small, disciplined, informed, well-financed, purposeful swarm of lobbyists will prevail over a herd of oblivious taxpayers every time.

Regular Order vs. National Interest

Regular order is congressional speak for the process by which a party’s congressional leadership, committee chairmen, and individual representatives and senators play the tax game (under House and Senate rules of procedure) from the moment a tax bill is introduced until it becomes law.

To understand regular order, imagine a circuit board populated with a few hundred circuits and, at each juncture, a switch. While a circuit board and regular order each operate based on hundreds of switches, the switches differ as night and day. The switches for a circuit board operate as programmed by electrical engineers, but the switches for regular order are operated by politicians whose decisions are based on perceived self-interest. Just as a signal (in the case of a circuit board) cannot make it through the system unless all of the switches are turned on, so too a tax bill (in the case of regular order) cannot make it through the tax game unless all of the switches are turned on. To be successful in playing the tax game, players must master the art of coaxing and/or compelling politicians to turn on their switches. Programming the switches on a circuit board is easy, but convincing the players in the tax game to turn on their switches is excruciatingly hard work.

Under regular order, one or more switches control every phase of the tax game from the introduction of a bill, to its referral to committee, to the amendment process in committee, to its passage out of committee, to its consideration by leadership to be placed before the full House or Senate for a vote, to the amendment process before the full House or Senate, to dodging a filibuster on its way out of the Senate, to its referral to a House-Senate conference committee, to the amendment process inside the conference committee, to a final vote by each house, and to the President for final approval. At each of these major junctures, and a bunch more minor ones, either a single member or (in some instances) the party’s leadership controls if a switch is to be turned on or left off. Unless all switches are turned on, a tax bill fails.

Individual Prerogatives and Party Leadership

House and Senate rules protect the prerogatives of individual members while simultaneously enabling their party’s leadership to discipline these prerogatives when necessary to protect the interest of the party. Nothing underscores the importance of individual prerogative more than for a member of the House or Senate to have the power to either get or keep a juicy tax preference for a preferred donor or constituent. And, nothing underscores the importance of protecting a party’s interest more than its leadership’s ability to discipline an individual’s prerogative, particularly its committee chairmen.

Generally, the agenda of an individual member is first to get re-elected, second to become a committee chairman or member of leadership, and third, do what they think will be good for America. And, generally, the agenda of the members of a party’s leadership in both the House and Senate is first to get re-elected, second, to maintain or enhance their status in leadership, third, to maintain or obtain a majority in its house for their party, and fourth, to do what they think will best help America.

Getting reelected for almost all members of Congress requires both money to woo the voters and support from party activists, and what a member of Congress has to do to get money and attract activists rarely reflects the national interest. Most campaign money comes from special interests that have an interest in one or more tax preferences, and most campaign workers come from party activists who have strong ideological bents. For politicians on the prowl for money, getting, expanding, and keeping tax preferences for special interests is where the money is. There is no money in getting rid of tax preferences. Most party activists will man the ramparts over explosive ideological issues but cannot get worked up about getting rid of tax preferences, particularly if they get something out of them.

Local Interest vs. National Interest

All members represent states or districts with distinct electorates that have special economic, social, and ideological attributes that differ not only from each other but from America as a whole. Even though a majority of states and districts may be prosperous and growing, the national interest suffers if a substantial and growing minority falls behind. Not only are local interests often at variance with the national interest, but more often than not, they are in direct conflict.

Tax preferences that benefit certain industries concentrated in particular states and districts may mean more jobs there, but for other states and districts with industries not so benefitted, they may suffer job loss. Since tax preferences are the product of a game in which the spoils go to the victors, states and districts with politicians skilled at playing the game fare best. Doling out tax preferences to industries located in states and districts whose senators and representatives just happen to play the tax game best does not necessarily lead to economic growth that promotes the national interest.

Allocating the tax burden among different income groups affects both America’s economy and its political and social health. In deciding how much the rich and poor and those in between should pay in taxes, some states and districts have high-income electorates and others have low-income electorates. The differing interests of diverse electorates play out in the tax game. Raising or lowering the relative tax burden of certain income groups at the expense of others because the senators and representatives who represent those groups just happen to play the tax game best does not necessarily promote America’s economic growth and political and social well-being.

For politicians seeking election from a particular state or district, they had better be in sync with the perceived self-interest of that state’s or district’s electorate or be prepared to go into a different line of business. In the ongoing contest between the interest of a state or district versus the national interest, local interest almost always wins.

Individual Member Interest vs. Party Interest

While the interests of a political party are broader than those of its individual members, neither party can represent the national interest. Both parties have core ideological, geographic, income, and geographic constituencies that comprise important parts, but not the whole, of the national interest. To mollify their constituencies, political parties almost always advocate their interests rather than sacrificing them to the national interest. Political parties are not in the nobility business.

Defining America’s national interest requires reconciling the interests of (1) many diverse ethnic and social groups, (2) a population with huge income and wealth disparities, and (3) all types of businesses, many of which compete with each other. Defining the national interest begins with first understanding the interest of each group, and second balancing the interests of each of these groups against the others. Politicians elected locally and affiliated with a political party cannot be expected to devote the same energy to understanding the national interest as they do for their local interest and their party interest, particularly when the two are in conflict.

Even though a party’s interest is broader than an individual member’s interest, each party’s interest must reflect its activists and those of economic groups and businesses aligned with it. Otherwise, the party will be unable to mobilize its forces to do battle in the tax game. Sometimes, but not too frequently, the interest of an individual member of a party conflicts with the party. If the party’s leadership has to have the individual member’s vote to win, then the individual member is put to an unpleasant choice—vote against a local interest and risk losing an election, or vote against the party leadership and risk losing a valuable committee assignment and/or its financial support. Although a party’s leadership can usually depend on getting an individual’s vote in a crunch, it is not a certainty.

Divided Congress

Working a controversial tax bill is hard enough when dealing with a single party, but working a controversial tax bill with two parties is more than twice as hard. Tampering with almost any tax preference stirs up controversy because it involves lots of money going in and out of the pockets of influential groups. Each party is aligned to influential groups who believe that their interest and the national interest are the same and that their party’s job is to guarantee that their interest prevails. Influential interest groups who contribute millions to campaigns are not interested in being lectured on compromise and the national interest. In most times, asking a party to compromise asks a lot, but in times when parties are polarized, asking a party to compromise asks too much. So, if one party controls one house of Congress and the other controls the other house, compromise becomes all but impossible except in extreme cases of need.

Regular Order’s Legacy

A growing array of tax preferences with no indication of a slowdown is the legacy of regular order. Regular order with its many switches offers special interests almost unlimited opportunities to sabotage legislation that would restrict tax preferences. All a special interest need do to kill a bill is get to one politician who controls a single switch to refuse to throw it. Since many special interests have invested heavily in many politicians, special interests almost always have little trouble in finding at least one politician who is willing to do their bidding.

Oftentimes a single politician aligned with a single special interest who controls a single switch can kill proposed legislation that could easily gain overwhelming majorities on the floor of both houses. Such is the power of regular order. While the national interest begs for a personal income tax cleansed of almost all tax preferences, regular order all but guarantees their proliferation. Just like you do not have to be a weatherman to know which way the wind is blowing, you do not have to be a political scientist to know how regular order works and does not work.

PRESIDENT DONALD TRUMP AND WHAT IT HAS MEANT FOR TAXES

In modern politics, nothing happens in taxation without the personal approval of the President, and so it is a big deal that Donald Trump, America’s most notorious billionaire/personality, got himself elected President. Experts have attributed President Trump’s victory to his having persuaded millions of disaffected middle-class voters to believe that if elected he would make their lives better. During the 2016 presidential campaign, many of these voters convinced themselves that he would get back many of the jobs that they had lost, make the jobs they still have more secure, and raise their wages. It is easy to understand why millions of middle-class voters were looking for a better economic deal, because for the last 40-plus years the economy has left their incomes flat or falling and deprived them of job security. America’s future depends on a healthy and growing middle class and what happens to families like the Middletons will determine in large part the fate of the middle class. For the Middletons and families like them, their test of tax policy is whether it provides them with more after-tax income and makes their jobs more secure.

In addition to after-tax income and job security, social insurance (that includes programs for retirement, health care, post-secondary education, and a safety net in case of job loss) is critical to making life better for the middle class. While the effect of taxes on after-tax income is clear, its effect on jobs and social insurance is far from clear. What makes jobs more secure depends more on educational and economic factors than on taxes. As will be shown later, social insurance is paid for with taxes and cutting taxes can mean cutting social insurance.

So, what President Trump did about taxes affected all Americans and none more than middle-class families.

Enacting tax policies that advance the national interest would require that President Trump make significant personal sacrifices. President Trump’s billions in wealth (as reported to the Office of Government Ethics) is concentrated in commercial real estate holdings, and his success in business stems primarily from his being a real estate developer and owning interests in real estate. Since Trump has chosen not to divest himself of his real estate holdings or real estate development business, both his wealth and income are significantly affected by any changes in taxes. More than other major industries, the real estate industry benefits from tax loopholes, which have been described as follows:

“A deliberate or accidental provision in tax law that allows an individual or corporation to be exempt from some provision. Most loopholes are deliberate and are created to ensure that the law is not draconian, to please a lobbyist, or for some other reason. For example, a country may pass a law requiring most companies to pay taxes on their net assets each year. However, it may contain a loophole allowing the exemption of companies that would find this tax too difficult or expensive. Occasionally, the government may close a loophole, which means that it takes away the exemption.”

Tax loopholes (special deals in the tax laws by which the politicians prefer a certain group of taxpayers over others by taxing their income at lower rates and making their deductions and exemptions more generous) are just another name for tax preferences. Tax preferences are the mortal enemy of both progressive taxation that favor middle-class taxpayers and free-market principles that assure that capital will be employed in its highest and best use independent of government involvement. As will be shown later, the overall effect of tax preferences has been to tax capital income at lower rates than labor income, which helps explain why the 400 highest income taxpayers pay effective tax rates lower than many wage-earning taxpayers.

President Trump’s skills as one of America’s preeminent real estate developers provided a few clues as to how he dealt with taxes. Among President Trump’s real estate developer skills are the following:

First, he has dreamed great dreams and then worked successfully with architects and designers to make them so.

Second, he has both created and satisfied demand in commercial developments, such as office, retail, and travel and leisure projects, and residential developments, such as apartments and condominiums. Without demand, no development is possible, but with imagination and audacity, exceptional developers, like President Trump, can create demand.

Third, he has financed his developments by raising capital at the cheapest cost by working with tax lawyers and accountants to exploit the use of the many tax preferences that favor the real estate industry.

Fourth, he has convinced private investors, commercial banks, and investment banks to provide the capital to get his deals done.

Fifth, he has obtained from politicians of all stripes (by hook or by crook) special tax provisions as well as the zoning and building permits necessary to get his deals done.

Sixth, he has negotiated deals with property owners, contractors, vendors, property managers, and unions to make his developments work.

Seventh, he has marketed (1) commercial developments to sophisticated tenants such as hotel chains, leading business tenants including law and accounting firms and major corporations and (2) the residential developments to upscale tenants and purchasers.

No developer skill is more important than raising money because without it there will not be a development. Unlike investor money which must be repaid with a return, tax preference money that substitutes for investor money is free and does not have to be repaid. Since the cheapest capital is money saved by avoiding taxes, President Trump became an expert in making sure that his tax lawyers and accountants did not miss a trick in taking full advantage of every tax gimmick available. Personally, President Trump has bragged about not paying taxes.

President Trump’s record as a developer proves conclusively that (1) he knows what tax preferences are and how to exploit them, (2) he is a skilled and ruthless negotiator, and (3) he deals effectively with politicians of all stripes. These skills make President Trump a great player in tax game politics that determines winners and losers, but having these skills does not foretell for whose benefit he will employ them. While it is in the Middleton family’s interest that taxes raise enough revenue to pay for the social insurance on which the middle class depends and that the after-tax income of the middle class be increased, neither of these things is in President Trump’s personal financial interest. Most super-extraordinary and capitalist taxpayers believe that it is in their interest to cut social insurance to keep taxes down and to reduce their share of the tax burden even if it means increasing that of the middle class. As the Trump tax plan shows, President Trump used his skills to favor his personal financial interests and that of the super-extraordinary and capitalists over that of the middle class.

The Trump Tax Plan

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into law which made major changes in the taxation of both individuals and businesses. In doing so, President Trump removed all doubt about whose interest he would advocate in tax policy, either those of the middle class like the Middletons or those among the very, very best-off like himself, his family, and his friends. Those like Trump, his family, and friends won hands-down. The Trump tax plan cut taxes so deeply that it will add at least another $1 trillion over the next decade to an already historically high national debt and used the tax cuts to favor the very, very best-off over the middle class, recipients of capital income over wage earners, and current taxpayers over future taxpayers. While President Trump’s tax plan included many specific provisions cutting various types of taxes, it only tinkered with the hundreds of tax preferences, as shown by the JCT in its “Estimated Budget Effects of the Conference Agreement for H.R.1, The “Tax Cuts and Jobs Act, Fiscal Years 2017-2027.” Regarding tax preferences, the Trump tax plan eliminated a few, trimmed a few, but left most in place and created many new ones. President Trump justified his debt-financed tax cuts by claiming that they would increase average household incomes anywhere from $4,000 to $9,000 a year.

The leading changes to the personal income tax included the following: (1) an across-the-board rate reduction with the top rate cut from 39.6% to 37%, (2) lowering the income levels associated with each bracket, (3) changing the measure for adjusting brackets for inflation from the consumer price index to the less generous chained consumer price index, (4) doubling the standard deduction, (5) eliminating the personal exemption, (6) increasing the child tax credit, (7) reducing the alternative minimum tax on those with high incomes, and (8) eliminating some and reducing other itemized deductions, such as employer-provided moving expenses, state and local taxes, home mortgage interest, medical expenses, preparation of individual tax returns, and certain other miscellaneous expense items. Individual taxes were also lowered by doubling the exemption under the Estate and Gift Tax and eliminating the penalty under the Affordable Care Act for not having health insurance. Almost all changes to individual taxation expire after December 31, 2025.

The leading changes to the taxation of business income included the following: (1) individuals who receive business income from most partnerships, trusts, and limited liability companies (S-Corps) will be allowed a 20% deduction under the personal income tax for such income; (2) for corporations, (a) the corporate tax rate has been cut from 35% to 21%, (b) the rate of certain types of depreciation has been accelerated, and (c) the deductions for a number of business expenses (the most significant of which are a 30% limit on interest deductibility and the denial of carry-back treatment of the net operating loss deduction) have been modified; and (3) domestic corporations doing business internationally, (a) may receive dividends from their foreign subsidiaries without incurring tax liability, (b) will have high return income from foreign sales (whether earned through a foreign corporation or a domestic corporation) equalized in order to reduce the erosion of the corporate income tax base, and (c) will be subject to a new minimum tax for certain related party transactions. The deduction of business income from S-Corps expires at the end of 2025, and the acceleration of depreciation is phased out by 2026.

Before the enactment of the Trump tax plan, the national debt had grown to almost $20 trillion, 107% of GDP, the highest debt level since 1947, and, as shown on Table II-11, it was projected to rise at an increasingly accelerating rate over the next decade by an additional $10 trillion.

Table II-11 Estimate of Revenues, Outlays, and Deficits before Enactment of Trump Tax Plan
		2017	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027
Revenues		17.3%	17.7%	17.8%	18.0%	18.1%	18.1%	18.2%	18.3%	18.3%	18.4%	18.4%
Outlays		21.0%	20.5%	21.2%	21.6%	22.1%	22.6%	22.6%	22.6%	23.0%	23.4%	23.6%
Deficit		-3.6%	-2.8%	-3.3%	-3.6%	-4.0%	-4.5%	-4.4%	-4.3%	-4.7%	-5.0%	-5.2%
Source: Data extracted from Table 1 of CBO’s June 2017 report An Update to the Budget and Economic Outlook: 2017 to 2027 contains tables detailing the agency’s budget projections for fiscal years 2017 to 2027.

Confronted with an out-of-control national debt, the Trump tax plan is estimated to add an additional $1 trillion to it. Many non-partisan national security leaders, most notably the Coalition for Fiscal and National Security, have sounded the alarm that the national debt threatens America’s national security. Before the enactment of the Trump tax plan, the Coalition warned:

“Over the next 25 years, the federal debt is projected to climb to 131 percent of GDP under current law—three times the average since World War II—or to a staggering 175 percent of GDP under alternative assumptions. This debt burden would slow economic growth, reduce income levels, and harm our national security posture. It would inevitably constrain funding for a strong military and effective diplomacy, and draw resources away from the investments that are essential for our economic strength and leading role among nations. Putting our budget onto a sustainable path is thus a fundamental precondition for future prosperity and security.”

To the extent to which the national debt threatens America’s national security, the Trump tax plan compounds the threat.

Table II-12 shows who, in terms of income groups, gets what in terms of the Trump tax cuts.

Table II-12 Average Change in Federal Taxes for Taxpaying Units (Negative Numbers Mean Tax Cuts and Positive Numbers Mean Tax Increases)
Income Category	2019	2021	2023	2025	2027
Less than $10,000	-$20.56	-$3.11	$14.59	$16.50	$20.17
$10000 to $20,000	-$87.13	$92.51	$146.87	$137.66	$318.33
$20,000 to $30,000	-$138.63	$89.77	$109.99	$134.34	$371.53
$30,000 to $40,000	-$338.27	-$122.86	-$12.70	$6.58	$299.08
$40,000 to $50,000	-$523.95	-$266.03	-$155.18	-$121.47	$300.52
$50,000 to $75,000	-$841.31	-$682.47	-$533.98	-$505.32	$141.71
$75,000 to $100,000	-$1,258.03	-$1,131.56	-$886.88	-$874.90	-$53.21
$100,000 to $200,000	-$2,294.71	-$2,080.11	-$1,554.33	-$1,484.86	-$179.80
$200,000 to $500,000	-$7,155.27	-$6,522.11	-$4,887.86	-$4,860.22	-$593.57
$500,000 to $1,000,000	-$20,877.94	-$18,356.78	-$11,817.03	-$11,296.02	-$2,550.62
$1,000,000 and over	-$64,428.32	-$51,104.45	-$16,553.87	-$15,711.95	-$13,505.56
Source: Data extracted from report prepared by the Joint Committee on Taxation, December 18, 2017, JCX-68-17.

For most high-income, wage-earning taxpayers, they will get a middling tax cut (in the range of $1,200 to $2,300) from 2019 through 2023, but afterward, their tax cuts will be substantially reduced. For most middle- and low-income wage earners, they will get modest to paltry tax cuts (in the range of $850 to $20) in 2019, but afterward, their tax cuts will be substantially reduced with some of the lower-income wage earners getting a tax increase as early as 2021. For those with substantial business and/or investment income, almost exclusively taxpayers with incomes over $100,000, they will get healthy and enduring tax cuts with those with the highest income getting by far the most. Most of the benefit of the tax cuts went to those with S-Corp and C-Corp income which is highly concentrated in those with income of $100,000 or more. As Table II-13 shows, 94% of taxpaying units (those with income less than $100,000) received only 24% of the benefit of the tax cuts in 2019 with it shrinking to 4% in 2027 while 6% of tax paying units (those with income of $100,000 or more) received 76% of the benefits of the tax cuts in 2019 with it swelling to 96% in 2027.

Table II-13 Percentage Share of Tax Cuts Under Trump Tax Plan
Income Category	Percentage of Taxpaying Units	2019	2021	2023	2025	2027
$0 to $100,000	94%	24%	20%	22%	22%	4%
$100,000 and over	6%	76%	80%	78%	78%	96%
Source: Data extracted from report prepared by the Joint Committee on Taxation, December 18, 2017, JCX-68-17.

In the ongoing contest between simplicity and complexity in taxation, the Trump tax plan made taxes simpler for almost all wage-earning taxpayers but more complex for those with business income. By rolling the personal exemption into the standard deduction and curtailing a few itemized deductions, the Trump tax plan made it in the interest of all but a very, very few wage-earning itemizers to abandon itemization. Eliminating itemization will greatly simplify taxation for most individual taxpayers. By creating a deduction for 20% of certain types of pass-thru income from S-Corps and modifying many corporate tax preferences, the Trump tax plan made the taxation of business income more complicated. Most owners of S-Corps, however, will find the added complexity a tolerable nuisance because they will get lower taxes. Highly paid tax professionals will enthusiastically welcome the Trump tax plan because it means higher fees. So, the Trump tax plan simplifies taxation for most wage earners but increases complexity for those with business income.

Comparing the Trump Tax Plan with Prior Law

Compared to prior law, the Trump tax plan not only favors the very, very best-off over the middle class, but it both threatens America’s national security and invites political strife among various groups of taxpayers.

The Trump tax plan favors the best-off over the middle class because:

• It deprives the government of the revenue needed to pay for social insurance essential for the middle class to have a decent retirement, adequate health care, the ability to provide a post-secondary education for their children, and a social safety net to help them in case of unexpected job loss.
• While the middle class got breadcrumbs for tax cuts, those with the highest incomes and the wealthy got loaves.

The Trump tax plan threatens America’s national security because:

• An ever-growing national debt means ever-growing debt service payments leaving an ever-shrinking share of tax revenue to meet America’s growing national security, infrastructure, and social insurance needs.
• If America is confronted with a future national emergency, its ability to borrow (at reasonable interest rates) the resources necessary to cope with it will be at risk.

The Trump tax plan invites political strife among various groups of taxpayers because it has widened the after-tax disparities among the following groups of taxpayers:

• those with the highest incomes and the most wealth are better-off relative to the middle class,
• those with business and investment income are better-off relative to wage earners,
• those with huge inheritances are better-off relative to those who have small or no inheritances,
• those in the middle class who live in low-tax states are better off relative to those who live in high-tax states, and
• current taxpayers are better-off relative to future taxpayers.

The revenue loss due to Trump’s tax cuts and the ongoing needs of more resources for national security, social insurance, and infrastructure all but guarantee growing political strife on the one hand, among various groups of taxpayers with each seeking to shift the burden from themselves to others, and, on the other hand, among those groups who are competing for scare-tax revenues to preserve America’s national security, to fund the social insurance on which the middle class depends for its standard of living, and to pay for improving America’s infrastructure. As the pressure for increasing taxes intensifies due to dwindling revenues, and the need for social insurance and infrastructure grow, so too will political strife.

President Trump’s Rationale for His Tax Plan

As justification for his tax plan, President Trump’s Council of Economic Advisors (the CEA) predicted (in its 2017 publication, “Corporate Tax Reform and Wages: Theory and Evidence”) that reducing the corporate tax rate from 35% to 20% would have the following effect:

Conservative estimates from the literature imply an increase in average household income of $4,000 and more moderate estimates show increases of $9,000. Put simply, capital deepening, which brings additional returns to the owners of capital, brings substantial returns to workers as well.

“Capital deepening,” in plain language, means putting more money in the pockets of the owners of S-Corps in the expectation that they will invest the tax cuts in new “factories” and “equipment” that will create more and better-paying jobs for the middle class. If this prediction proves true, it will go a long way to justifying the Trump tax plan, but if not, a lot of tax revenues will have been wasted and the disparities in income and wealth between the middle class and the very, very best-off will worsen. As a cautionary note, investments in new factories and equipment—given advances in technology that have accelerated automation—might also result in job loss if the new factories and equipment displace workers. Over time, the facts will either prove or disprove President Trump’s prediction, but in the meantime, there are plenty of reasons to doubt it. With the passage of a couple of years, there is no evidence that the Trump tax plan has led to new additional jobs or an improvement in job security for the middle class.

Tax cuts are not an economic reward, like increased profits, for skill in the world of business. Instead, they are a windfall, much like a gambler’s winnings in a crap game. While a gambler’s winnings are the product of luck, tax cuts are the product of some groups of taxpayers, to the exclusion of others, influencing the right politicians for their own advantage. In the case of the Trump tax cuts that go to the owners of S-Corps and, the owners, like a gambler, can do with their winnings as they please. Generally, the owners of S-Corps can dispose of their winnings in any of the following ways:

• They can keep the money themselves and increase their personal consumption; and/or
• They can keep the money themselves and increase their personal savings; and/or
• They can cause their businesses to reduce the prices of their goods and services for the benefit of their customers; and/or
• They can cause their businesses to increase the wages of their employees; and/or
• They can cause their businesses to add new jobs, and/or
• They can cause their businesses to expand by purchasing new factories and equipment to make their businesses more competitive and/or meet new demand.

It is bad business to (1) pay employees more than necessary, (2) employ unneeded employees, (3) fail to charge the highest prices possible to maximize profits, or (4) fail to expand whenever it will add to a businesses’ bottom line. The purpose of any business is to make money for its owners, not to engage in philanthropy by paying employees more than necessary, hiring unneeded employees, or unnecessarily cutting prices. If a business owner has charitable impulses (and thankfully many do), they can best satisfy their impulses by donating, as individuals, their share of the business profits that have been distributed to them.

For tax-cut money to create new and better paying jobs, it must be invested (as stated by President Trump’s CEA) in new factories or equipment. Saved tax-cut money that goes to add to a business owner’s personal portfolio of stocks or other investments, purchase fine art or vacation homes, or pad their personal bank account makes them wealthier but does not mean more and better jobs in their businesses. Since nothing in the Trump tax plan requires business owners to invest their tax cut money in new factories and equipment, many business owners may choose to either save it or use it for a trip to Paris, for redecoration, for yet another private club membership, or for some other indulgence. If business owners believed that adding a new factory or equipment to their business would have added to its bottom line, presumably they would have done so without the tax cut.

Only if the economy is starved for the investment capital needed for business expansion can tax cuts be justified, particularly debt-financed tax cuts given to well-off business owners. There are two major sources of investment capital—existing wealth and business profits. In pre-pandemic 2016, business profits accounted for a 9-percentage point higher share of national income than the 40-year average (as shown on Table II-14) resulting in their having more capital to finance their expansion.

Table II-14 Percentage Shares of Gross Domestic Income
	40-year Average	2016	2016 Compared to 40 Year Average
Gross domestic income	100.00%	100.00%	100.00%
Compensation of employees paid	55.42%	53.20%	95.99%
Private enterprises	22.81%	24.80%	108.74%
Corporate profits with inventory valuation and capital consumption adjustments, domestic industries	7.73%	8.90%	115.18%
Source: Data Extracted from Bureau of Economic Analysis, Table 1.11. Percentage Shares of Gross Domestic Income A1, [Percent], Last Revised on: August 3, 2017.

With those in the top 1 percent enjoying an historically large share of wealth available for business investment and business profits grabbing an above average share of national income, there is no apparent need for a government-paid windfall—in the form of a debt-financed tax cut—to meet the investment needs of business.

While granting tax cuts to business owners for them to invest in their businesses is a dicey way to create more jobs, a far more certain way of creating more jobs would be to grant tax cuts directly to the employees of these businesses so that they can increase their consumption. In 2016, wage income, as a share of national income, had fallen about 4 percentage points below the 40-year average compared with total business income (in general) rising about 9 percentage points and corporate profits (in particular) rising about 15 percentage points above the average. With wages shrinking, as a share, and business profits swelling, as a share, a boost to consumption would likely do more to encourage job growth than a boost to investment. Tax-cut money put in the pockets of middle-class wage earners (who have gone for more than a generation without an increase in their standard of living) would most likely result in their spending their tax cut money on goods and services. This increased spending on goods and services would force businesses to expand to meet the new demand.

Since nothing in the Trump tax cut requires that tax-cut money be invested in jobs creating factories and equipment, there is a danger that the tax cut will do nothing more than add to the national debt and exacerbate wealth disparities. If the purpose of the tax cuts was to add jobs and improve the living standard of the middle class, a better way to do it would have been to grant the tax cuts directly to the middle class. Adding a $1 trillion or two to the purchasing power of the middle class would most certainly lead to more jobs from those businesses competing to satisfy the new demand. In an economic environment with ample investment capital, a demand-driven tax cut offers a better prospect for job creation than an investment-driven tax cut.

CHANGING THE GAME

The Key to Tax Reform: Short-Circuiting Regular Order

A personal income tax that maximizes economic growth and allocates the tax burden in a way that fosters a healthy and growing middle class depends on eliminating or sharply curtailing almost all tax preferences. Getting such a tax cannot happen unless regular order is short-circuited. The best chance for short-circuiting regular order is for the President to create a presidential commission on tax reform that proposes a politically compelling comprehensive plan that Congress dare not reject. To do this, a President can create a commission pursuant to an executive order modeled after the one that established the “National Commission on Fiscal Responsibility and Reform,” better known as Simpson-Bowles. Constitutionally, the President has the inherent authority to appoint presidential commissions to study and recommend to Congress policies that promote the national interest, but a commission’s recommendations can only become law if approved by both houses of Congress.

In the real world of politics, Congress will never enact the recommendations of a presidential commission unless it suspends regular order. Under regular order, congressional procedure would peck to death any comprehensive tax proposal made by almost anyone of either party. Suspending regular order means Congress (1) putting aside the procedural traps enshrined in the rules of the House and Senate and (2) guaranteeing within a limited time-frame an up or down vote by both the House and Senate on commission recommendations as written and without amendment. Putting aside the procedural traps translates to individual members of both the House and Senate and the leadership of both parties giving up their prerogatives, something no one can be expected to do willingly.

Congress will not give up regular order unless it is motivated to do so. Since reason, fairness, and patriotism rarely motivate Congress, fear offers the best prospect of turning the trick. Few fears register with both individual members and party leaderships more than the fear of losing their offices. Congress will give up regular order only if both its individual members and party leaderships are made to believe that they could lose their jobs if they refuse to give it up. Unless Congress believes that it would face dire consequences if it uses regular order to bottle up a commission’s recommendations, it will never give up on regular order. Seeing mass support from a roused public that includes a majority of voters from both parties and independents as well as a consensus among major non-partisan and bi-partisan social, economic, and public policy organizations is the sort of proof that moves Congress.

Even with broad public support for a commission’s recommendations, no proof would be more convincing than if Congress sees tens of millions of middle and low-income voters (who hardly ever pay any attention to politics) suddenly clamoring for tax policies that benefit them. What these millions of voters lack in money and influence, they make up for in numbers. Their numbers count, however, only if Congress believes that they will vote in the next election. Since most middle and low-income Americans are too busy living their lives and scratching out a living to think much about politics or tax policy, mobilizing them as active voters is the challenge.

Most Representatives and Senators who have been around for a while have watched a mass of voters get exercised over the headline du jour for a week or so and then when the next and more enticing headline du jour pops up, voter interest in the first headline evaporates. Seasoned politicians will not take voter disgust seriously unless voters express it vigorously and continuously for an extended period of time. No doubt the potential political power of middle and low-income Americans is the sleeping giant of politics, and if that potential can be realized, it will be decisive. But in a contest between a giant who will not wake up, and a wide-awake, clever, and rich dwarf, put your money on the dwarf.

As to awakening the giant, imagine what it would take to get the average Middle-Class American, after a hard day’s work driving a six-wheeler on a long haul, and his wife, after eight long hours of checking groceries at Albertsons, cleaning house, and cooking dinner for the family, interested enough in tax legislation to write letters to their Representative and Senators and vote. Middle-Class Americans will never get in the game unless they can be made to understand what is in it for them, and if they do, they can win. Middle and low-income Americans will not get a personal income tax that is in their interest unless tens of millions like them, get in the game and scare Congress into junking regular order.

Any President who wants to enact tax laws that improve the futures of middle and lower income Americans must generate so much fear in Congress that it dare not get in his or her way. Creating a commission whose recommendations are so attractive to the public that Congress must find them irresistible is the best card the President has to play in the tax game. While presidents can appoint commissions on any terms they wish, a commission whose recommendations do not attract broad public support fails. So, in establishing a commission, the President must make sure that its recommendations will be compelling to the public in general and middle and low-income Americans, in particular. If Middle-Class Americans cannot be convinced to sign up and let the politicians know where they stand, the effort will fail. This public support must be obvious to all, loud and sustained, or commission recommendations will not overcome regular order.

Getting commission recommendations that will do the job requires active and intimate presidential involvement in each of the following nine steps:

Step One:		The commission’s purpose should be to strengthen and expand the middle class through reforming the personal income tax. Tax reform should not be regarded as an exercise in tax-law housekeeping, but as a necessity to preserve and expand the middle class so that millions more of Americans can live the American Dream.
Step Two:		The public must be made to understand why tax reform that strengthens the middle class is essential to the national interest. Americans are a busy people who are bombarded with all kinds of information from all kinds of sources. Only the President has the ability to cut through the clutter and explain the importance of a complex issue to the public. The presidential role of Educator-in-Chief can be as important as the role of Commander-in-Chief.
Step Three:		The commission must be instructed to develop tax reform legislation (in finished form) that can be approved by Congress. Congress must be presented with legislation that can be enacted in a single vote by each house without any amendment.
Step Four:		The commission’s charter must provide for (1) a board that represents the broad national interest and both parties, (2) fair procedures that assure that all points of view will be represented, and (3) an open process that will be subject to close scrutiny by the press and the public. Unless the public believes that all points of view will have a chance to be heard in open proceedings, the commission’s recommendations will not be credible with the public.
Step Five:		The President must appoint members (1) whose credibility and expertise with both the public and the mainstream of both political parties is impeccable, (2) who will put the national interests ahead of partisan political interests or other special interests, and (3) who will be willing to help sell the recommendations to the public. Unless the public believes that the board has expertise and has put the national interest ahead of partisan interest or other special interest, the commission’s recommendations will not be credible with the public. And, unless the board members are willing to advocate the recommendations to the public, it will be difficult for the recommendations to attract public support.
Step Six:		Before establishing the commission, the President must have assurance that his or her proposals will get full consideration by the commission. The President must strike a delicate balance between making sure the recommendations are consistent with his or her policies against being perceived as having stacked the deck in favor of pre-determined policies. If the recommendations are believed by a significant minority of the public to have resulted from a rigged game, then there is little chance of success.
Step Seven:		Once the recommendations are reported, the President must mobilize the members of the board, as many public policy interest groups as possible, influential leaders from all walks of life, and the media to attract public support. Unless the public overwhelmingly supports the recommendations, the process will be for naught.
Step Eight:		If the recommendations attract broad public support, the President must formally ask Congress to approve them. Since in politics timing is almost everything, the President must pick the most opportune time to ask for Congress to suspend regular order and approve it.
Step Nine:		As the recommendations are being considered by Congress, the President must bring ALL AVAILABLE POLITICAL RESOURCES to bear against opposing representatives and senators. The width and depth of public support, the quality of the recommendations, the President’s personal popularity, and the President’s backroom, bare-knuckles political skills will determine the outcome.

Under the best of circumstances, by-passing regular order is tough, but in the case of tax reform, it is exponentially tougher. To get a middle-class friendly personal income tax will mean taking billions out of the pockets of the most influential and powerful interests in America and that will not come easy. Each step along the way to tax reform will require intense personal commitment by the President and even more important, guile, LBJ-style guile. Since any misstep would likely prove fatal resulting in all the energy and political capital going to waste, it will take a brave and persistent president to try, much less succeed.

As daunting as the task is for the President to use a commission to get tax reform, it affords a far better chance of success than relying on regular order. Under regular order, Congress sets the agenda and determines the pace, but by using a commission, the President sets the agenda and controls the pace. As dicey as it is, a presidential commission offers the only practical hope for tax reform that will strengthen the middle class.

So, only a popular president who deeply believes that tax reform offers the best way of strengthening the middle class and preserving the American dream for millions of Americans, and who has immense political courage, will dare to take on the task.