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The GOP Takes Back Tax Reform

March 01, 2013

In Virginia Tuesday, President Obama stood before roaring crowds and clicking cameras to act out his latest sequester melodrama. About the time he finished, a lone Michigan congressman sat down in a quieter Capitol Hill conference room to unveil the real news of the week.

The politico: Dave Camp, chair of the House Ways and Means Committee. His subject: tax reform. The news—which by rights overshadows sequester, the Oscars, maybe even the pope’s resignation—is that Republicans are not only doing a tax rewrite this year, but making it their signature policy initiative. Maybe the GOP is tired of losing after all.

House Speaker John Boehner’s confirmation that the vaunted title of H.R. 1 will go to comprehensive tax reform is notable because it wasn’t assured. As the GOP has publicly waged a sequester fight, it has privately spent the past months in an intense internal debate over tax reform. Mr. Camp, who has been pushing the tax-reform rock up the GOP hill for years, claimed victory—but not before one last heave.

Those who warned against rushing ahead, including Majority Leader Eric Cantor, advised that tax reform holds political risk. A simple code sounds pleasant, but getting there means tough votes on dangerous topics. Want to lose friends fast? Chop the charitable deduction, squeeze mortgages, take away that tax perk for the biggest job creator in your district. Business will howl. Voters might freak. Democrats will pounce. Indeed, the White House may turn those votes into a central plank of its campaign to take back the House.

Proponents didn’t argue the point so much as overcome it with the simple reality that the GOP needs this—for both defense and offense.

The defensive point is wrapped in today’s budget fight. The White House knows that another straight-up tax-rate increase is impossible. The only way it can sate its desire to spend is to cadge further revenue under the guise of tax reform. Thus has the president become a tax-reform evangelical, using his pulpit to daily call for “closing loopholes.”

To remain silent on tax reform was for the GOP to cede a signature issue, even as it gave Mr. Obama leverage in the budget fight. How long could the party hold out for the president’s call for “reform” without a plan of its own?

Speaking of signature issues, Republicans also had a pressing need to reset the terms of the debate. Mr. Boehner’s November offer to use tax reform to give Mr. Obama revenue was a legitimate attempt to avoid rate increases. But it also opened the floodgates to the Democratic argument that tax reform is about raising funds for government coffers.

Those pushing for a grand deficit deal now envision a process by which Republicans and Democrats split the tax-reform difference, with some revenues going to government and some to lower rates. Even some Republicans—those worried by sequestration cuts to defense—have been lulled by this idea. Others have similarly bought into the Democratic argument that “tax reform” consists of revamping only the corporate code (since that piece allows Mr. Obama to rage about Big Oil and corporate jets and capital gains).

Messrs. Boehner and Camp used this week’s announcement to reapply the most basic conservative tax-reform principles. One: Any House bill will be “revenue-neutral,” meaning money raised gets plowed back into lowering rates. Two: Any House bill will simultaneously reform both the individual and corporate codes. “This is real tax reform,” one Republican staffer notes. “We needed to remind the public, Democrats—and ourselves—of that.”

But the better argument, and the one Mr. Camp has been doggedly making to his caucus, is that this is a way for the GOP to get back on economic offense. There is a glum GOP awareness that the party’s role of late has been that of responsible bearer of bad news. It has had to warn about deficits, advocate cuts, tackle entitlements. Somewhere along the way it lost its tax punch, and it has been outflanked by a president who has used class warfare to position himself as protector of the middle class.

H.R. 1 is a path to a bold and rejuvenated message on taxes—one that links simplicity and lower rates to economic revival. Done right, it’s a GOP response to Mr. Obama’s “fairness” line, allowing the party to stand with the millions of average Americans who can’t afford tax lawyers or lobbyists to carve out shelters. It’s a means for the GOP to make a growth argument that clicks. Tax cuts and new jobs aside, tax reform is a path to higher wages and more money for the weekly budget, the college fund and the retirement account.

“There is no better way to recapture the party’s core issues of taxes, the middle class and the economy” than tax reform, says one senior GOP aide. “It is the one silver bullet that hits all of those pieces.”

Far from being debilitating, this was an internal GOP debate worth having. Tax reform done right will be hard; Republicans needed to know that. Yet in knowledge can come wisdom. Having committed, the party’s task is now to do it big, do it bold, but mostly do it smart.