Tax reform: the perfect purple issue

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Lanny Davis
Former Special Counsel to President Clinton
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      Lanny Davis

      Lanny J. Davis counsels individuals, corporations and government contractors, and those under congressional scrutiny, on crisis management and legal issues by developing legal, media and legislative strategies that are designed to best produce a successful result for the client. He has experience in securities fraud and SEC investigations as well, and has found that utilizing such an integrated legal/media/lobbying approach can lead to quicker and less expensive settlements or even successfully litigated outcomes. Senior officials of public companies have also hired Lanny and his crisis group to defend themselves successfully against "short and distort" attacks and other market manipulations. For 25 years prior to 1996, before his tenure as special counsel to President Clinton, Lanny was a commercial, antitrust, government contracts and False Claims Act litigator (both in defense as well as plaintiff). He has argued numerous appellate cases in the U.S. courts of appeals.

      In June 2005, President Bush appointed Lanny to serve on the five-member Privacy and Civil Liberties Oversight Board, created by the U.S. Congress as part of the 2005 Intelligence Reform Act. In that capacity, he received the highest level security clearances so that he could be fully briefed and "read in" to the various anti-terrorist surveillance and financial tracking programs at the highest classified level. From 1996 to 1998, Lanny served as special counsel to the president in the White House and was a spokesperson for the president and the White House on matters concerning campaign finance investigations and other legal issues. Lanny has participated in national, state and local politics for almost 30 years. He has served three terms (1980 to 1992) on the Democratic National Committee representing the state of Maryland, and during that period he served on the DNC Executive Committee and as chairman of the Eastern Region Caucus. In Montgomery County, Maryland, he served as chairman of the Washington Suburban Transit Commission.

      Lanny has authored several books and lectured throughout the United States and Europe on various political issues. Between 1990 and 1996, Lanny was a bimonthly commentator on Maryland politics for WAMU-88.5/FM, a Washington, D.C. local affiliate of National Public Radio. He has been a regular television commentator and has been a political and legal analyst for MSNBC, CNN, Fox Cable, CNBC and network TV news programs. He has published numerous op-ed/analysis pieces in the New York Times, the Wall Street Journal, he Washington Post and other national publications.

      Lanny graduated from Yale Law School, where he won the prestigious Thurman Arnold Moot Court prize and served on the Yale Law Journal. A graduate of Yale University, Lanny served as chairman of the Yale Daily News.

      Lanny is admitted to practice in the District of Columbia and Connecticut and before the Supreme Court of the United States and the U.S. Court of Appeals for the District of Columbia Circuit.

The definition of tax reform, in today’s polarized politics, goes something like this:

Don’t tax you, don’t tax me, tax the other guy behind the tree.

Let’s face it — Republicans believe in tax reform if it means reducing taxes on the wealthy. Democrats believe in tax reform if it means increasing taxes on the wealthy.

And both parties believe in tax reform if it means cutting taxes on the middle class, even if that means endangering the solvency of Social Security — exactly what Democrats and Republicans agreed to do, with the urging of President Obama, when they cut the payroll tax by 2 percent for 160 million Americans, which would slow the revenue stream into the Social Security trust fund.

“I never thought I would live to see the day when a Democratic president and a Democratic vice president would agree to put Social Security in this kind of jeopardy,” liberal Iowa Sen. Tom Harkin said on the Senate floor. “Never did I imagine a Democratic president beginning the unraveling of Social Security.”

So is real tax reform possible? Is this the one issue that can bring the hyper-partisan Congress together even while they seem unable to agree on a deficit-reduction plan — even when they face $1.2 million in across-the-board cuts in defense and domestic programs?

It is possible if a 2012 tax reform effort follows the four basic principles that led to the last great bipartisan tax reform bill, the Tax Reform Act of 1986, enacted with leadership by President Reagan, every Republican’s conservative hero, and a bipartisan coalition in a Republican House and a Democratic Senate.

The first principle is equity, which both conservatives and liberals can embrace — i.e., equal incomes should pay equal taxes. The 1986 act reduced the top tax rate from 50 percent to 28, and increased capital gains from 20 percent to 28. That’s right — your eyes aren’t seeing things. President Reagan and leading GOP conservatives supported increasing capital gains taxes and liberals in Congress supported reducing tax rates, producing equal taxes on both ordinary income and capital gains.

The second principle is private market efficiency — i.e., the private market is a more efficient allocator of capital than Congress. That meant in 1986 President Reagan led Republican congressional conservatives to support eliminating $30 billion annually in loopholes, including such GOP sacred cows as oil and gas industry loopholes and large corporate tax breaks. But it also meant liberals accepting a reduction in the corporate tax rate.

And the third principle is revenue neutrality — and, I would argue, the principle that creates the “purple” incentive of bipartisanship and compromise between left and right. As then-New Jersey Democratic Sen. Bill Bradley, one of the key authors and sponsors of the 1986 Tax Reform Act, put it, “Once the discipline of revenue neutrality was adopted, the trade-off between loophole elimination [supported by Democratic liberals] and a lower top rate [supported by Republican conservatives] became obvious — the lower the rate, the more loopholes had to be closed to pay for it and the deficit was not increased.”