The first big revenue bill I wrote about was the massive 1981 tax cut engineered by President Reagan. The most recent was July’s big budget bill that cut taxes by about $4 trillion over the next decade, largely designed by President Trump. 

As I look back on these four decades, I’ve seen tax policy and the way it is produced change dramatically. And not, sadly, for the better.

• The traditional goals of good tax policy have historically been equity, efficiency, and simplicity. It may be impossible to achieve all three, but recent tax bills have accomplished none. Instead, tax legislation has become a tool largely to advance narrow social or economic goals rather than produce necessary revenue to fund government. Tax cuts steadily add to massive and growing deficits.
• Policymakers have not only slashed tax rates but they’ve gutted the income tax base.
• Congress and Trump have made the IRS far less capable of administering the federal income tax. As a result, risks to the integrity of the system have never been higher and taxpayer frustration is likely to increase.
• Congressional tax-writing committees have ceded much of their authority to party leaders, leading to poorly drafted bills and, often, unintended consequences.
• Even congressional leadership is losing influence. The president, aided by recent court decisions, is wresting tax-writing authority from Congress itself.
• Bipartisan legislation, once a hallmark of tax bills, has become an exception rather than the rule. Extreme partisanship makes tax policy more unstable than ever. 

All of this suggests the income tax may no longer be sustainable as the primary source of federal revenue. In coming years, it could well be complemented, and perhaps, supplanted, by some form of consumption tax. The question is whether that new revenue source will be a bad consumption tax, such as a tariff, or a well-designed Value-Added Tax, cash-flow tax, or even a carbon tax. 

It would take a book to detail all these trends, so I’ll focus on just a few.

The shrinking tax base

First, think about tax rates and the tax base. When I came on the scene, the top marginal individual income tax rate was 70 percent. Today, it is roughly half that, at 37 percent.  

At the same time, even as lawmakers cut rates, they’ve blown a hole in the amount of income that could be taxed. They did both by directly excluding income from tax and by adding deductions that lowered taxable income.

Long before my time, employer-sponsored health insurance was excluded from taxable income. Today, 60 percent of non-elderly Americans have this insurance, and the value of the employer share of tax-free premiums for a family has grown to nearly $26,000.  

But Congress has made many other forms of income tax-free, most recently, some tips and overtime pay. And it has added to the long list of expenses that taxpayers can use to lower their taxable income. The 2017 Tax Cuts and Jobs Act scrapped a few, but these were eclipsed by new additions, including the special 20 percent deduction for pass-through businesses such as partnerships and sole proprietorships.

As a result of these changes, together with spending increasing as well, the Congressional Budget Office projects that over the next decade, the gap between federal revenue and spending will reach 6 percent of Gross Domestic Product, or more than $2 trillion annually. 

That simply is unsustainable. Yet few in Congress appear to show any real interest in doing anything about it. 

The failed process

In many ways, these dismal results are symptoms of a failed process. Not to sound overly nostalgic, but back in the day, tax policy was heavily influenced by a cadre of highly experienced experts at Treasury and in Congress.

Of course, politics intervened, but when lawmakers wanted to accomplish some goal, staff could show them how best to do it. Congressional hearings illuminated difficult challenges and identified solutions. Bills often took years to make their way through the process. But that frequently resulted in better legislation. 

The landmark 1986 Tax Reform Act was spearheaded by Reagan, the Democratic House Ways & Means Committee Chair Dan Rostenkowski, and the Republican Senate Finance Committee Chair Bob Packwood. But the critical details were developed by largely anonymous staffers on Capitol Hill and at Treasury. 

Today, much of that staff expertise has been lost. Instead, many professional Hill staff move on after a couple of years, often to more lucrative lobbying or legal jobs advising private sector clients.

The goal is no longer good tax policy. It is only to win. 

Thus, bills are increasingly partisan and, as a result, policy shifts with the political winds, and taxpayers are unable to plan more than a year or so ahead.   

On top of all this, the IRS is scaling back enforcement efforts, and Congress continues to slash the agency’s budget and staff, making administration of the income tax increasingly difficult.  

All these trends may lead to some form of consumption tax. Trump, of course, already has shifted about $3.3 trillion in revenue from income taxes to tariffs, assuming his import taxes remain for a decade. 

The problem is that Trump’s exorbitant, constantly changing, and counterproductive tariffs risk damaging the US economy and probably are not sustainable. 

What, then, will replace them? That, I believe, will be the next big question for tax policy.

I’m proud to have helped create TaxVox almost 18 years ago. And working at TPC has given me the opportunity to learn about tax policy from the best. But I’m ready to (semi-) retire. While I’m remaining at TPC and the Urban Institute as a non-resident fellow, this will be my last regular TaxVox column. Thank you for reading.