Paul L. Caron

Friday, December 20, 2019

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Mehrotra & Bayer's The Promise And Limits Of Fundamental Tax Reform

This week, Sloan Speck (Colorado) reviews a new work by Ajay K. Mehrotra (American Bar Foundation; Northwestern) & Dominic Bayer (J.D. 2020, Northwestern), The Promise and Limits of Fundamental Tax Reform: Contrasting the 1986 Tax Reform Act with the 2017 Tax Cuts and Jobs Act, 53 U.C. Davis L. Rev. Online 93 (2019).

Speck (2017)In The Promise and Limits of Fundamental Tax Reform, Ajay Mehrotra and Dominic Bayer illuminate the possible future of the 2017 legislation known as the Tax Cuts and Jobs Act by comparing the law with the Tax Reform Act of 1986. Mehrotra and Bayer establish the political and policy roots of the 1986 Act, then trace the law’s piecemeal erosion over the next decade. Using this template, Mehrotra and Bayer conclude that the 2017 Act seems likely to unravel along similar lines.

Mehrotra and Bayer’s rigorous and informed discussion of the 1986 and 2017 Acts is a significant achievement. As the authors note, the press and politicians have connected these very different legislative initiatives in the popular imagination. Indeed, this juxtaposition might be the most bipartisan aspect of the more recent law: conservatives have trumpeted the 2017 Act as the spiritual successor to the 1986 Act, while liberals have condemned the 2017 Act as a betrayal of the fundamental principles embodied in the earlier legislation. Mehrotra and Bayer provide much-needed context and content to evaluate this category of claims.

These claims’ connection to durability, however, is perhaps less concrete. Only death and taxes may be certainties, but death’s finality is less subject to change over time than the computation of tax liability. When Mehrotra and Bayer talk about a law’s unraveling, they focus on pace and pressure: how quickly do subsequent Congresses reverse specific policies, and which policies are most susceptible to reversal? Burgeoning budget deficits, for example, may lead to rate hikes, while lawmakers may view base-broadening provisions as an opportunity to introduce new exceptions for favored constituencies. But causality is far from assured, and the possibility of epochal shifts far from foreclosed. The past is a foreign land, where things are just done differently.

In addition, my sense is that one could reverse Mehrotra and Bayer’s lens to positive effect. The 2017 Act, with all of its infirmities, perhaps prompts a reevaluation of the bipartisan reform movement that culminated in 1986. That movement’s low rates and broad base may not endure, but many of the 1986 Act’s anti-tax shelter provisions still exist, and still meaningfully check taxpayer shenanigans. Moreover, these provisions include two (or perhaps three) of the top five revenue-raisers in the 1986 Act. This legacy represents at least as much “reform” as any transitory changes to the rates and base. And, if we’re looking for durability, the 2017 Act’s anti-abuse provisions, most notably in the international area, might prove persistent.

Furthermore, the 2017 Act’s distributional inequities force some reconsideration of the meaning and importance of neutrality in 1986. First, a norm of distributional neutrality implicitly validates the pre-change state of social affairs. Even if politically necessary, this type of validation bears risks: one might “bake in” the benefits of tax shelters for certain income groups, or fail to recognize the burdens imposed or remitted by changes to, say, payroll and estate taxes. For those who want to unravel the 2017 Act (and there are at least seven of them at the moment), the appropriate focus is on getting the distributional questions right, rather than returning to the status quo of the Obama years. Second, the aftermath of the 2017 Act shows the intrinsic fragility of distributional analysis by income cohort. In October, some red-state Trump voters learned the limits of general, informational statements about changes in tax law; they should’ve consulted their return preparers before making any campaign contributions. Taxpayers’ particular circumstances matter, and one might revisit the 1986 Act with this more nuanced distributional perspective in mind.

Overall, Mehrotra and Bayer’s timely and accessible article provides a much-needed grounding for comparisons between the major tax legislation enacted in 1986 and 2017. This comparison, in turn, sheds light on the potential aftermath of the 2017 Act. Academics, as well as lawmakers and member of the press, should find their analysis of critical interest in conversations about the future of tax law and policy.

Here’s the rest of this week’s SSRN Tax Roundup:

Scholarship, Sloan Speck, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink