Bruce Bartlett: How to Avoid Reinventing the Wheel on Tax Reform, Part 2 He is the author of "The Benefit and the Burden: Tax Reform - Why We Need It and What It Will Take." Last week, I explained that much of the heavy lifting on tax reform has already been done in various studies that are still relevant to the problems of the tax code today. I concentrated on one in particular, the 1977 Treasury "Blueprints" study, largely written by the Princeton economist David Bradford. Today and in future posts I want to discuss some others that are easily available on the Internet. In his 1984 State of the Union address, President Ronald Reagan asked the Treasury Department to study tax reform and send him a report on options. The task fell largely to Eugene Steuerle, then a Treasury economist and now a senior fellow at the Urban Institute in Washington. The Treasury approached the project with an open mind. That is, it was not premised on a particular philosophy of taxation. This was frustrating to some of the political appointees at Treasury, who favored tax reform based on "supply side economics." They wanted a flat rate tax on a consumption base that would largely, if not entirely, exempt capital from taxation. Mr. Steuerle was a member of Treasury's career staff. The final report, published in November 1984, was a balanced discussion of tax issues generally free of politics or ideology - a pragmatic review of practical problems with the tax system and options for improvement that reflected a consensus view among tax specialists. The report was not a call for tearing up the tax code and starting over from scratch. It was about taking the tax system as it was, fixing glaring problems and proposing improvements that were doable, rather than pie-in-the-sky reforms with no chance of enactment. Two key constraints guided the Reagan tax reform effort. First was a hard revenue-neutrality requirement. Because our political leaders actually cared about the budget deficit in those days, a tax cut was not viable; any proposals that reduced revenue had to be offset by provisions that raised revenue. The final package was devised to neither raise nor lower aggregate revenues. Second was the political reality that Democrats controlled the House of Representatives and were likely to continue to do so after the 1984 election. This was important because the Constitution requires that all revenue bills must originate in the House. If the House refused to move a tax reform bill, the Republican-controlled Senate could do nothing about it. Thus the 1984 effort necessarily needed to be bipartisan from the beginning, and it was. The chairman of the House Ways and Means Committee, Dan Rostenkowski of Illinois, accepted the need for tax reform and was instrumental in moving the ball forward. For several months after the Treasury study was published, the White House reviewed its options. In May 1985, it sent a detailed tax reform proposal to Capitol Hill. It incorporated some valid criticisms of the Treasury effort and deleted some of the more politically controversial ideas. This proposal formed the basis of the Tax Reform Act of 1986. One lesson of that effort is that it is very, very easy for tax reform to lose its focus absent a detailed outline at the start of the process. Vague principles are insufficient to guide legislation, because it's too easy to ignore and jettison the unpopular revenue-raising side of the coin - the actual reforms - and just do a bill loaded with special-interest provisions enacted at the behest of tax lobbyists. Also, given the long road to tax reform from the Ways and Means Committee to the House floor, to the Senate Finance Committee, to the Senate floor, to a conference committee and final passage, many opportunities abound for squeaky wheels to demand their pound of grease. It is essential that there be some baseline against which to measure progress and experts following it closely enough to know when some seemingly innocuous amendment will interact badly with some other provision to create a perverse result. Even with the Treasury keeping a close eye on the progress of the Tax Reform Act of 1986, mistakes were made. A glaring one was the provision eliminating the deduction for interest paid on credit cards and other consumer loans. The idea was to curb borrowing for consumption while raising revenue to pay for revenue-losing provisions of the legislation. However, ending the deduction for consumer interest neither reduced consumer borrowing nor raised revenue, because mortgage interest remained deductible. Banks simply created home-equity loans to finance consumer borrowing and the interest remained tax deductible. By and large, such loans simply replaced those that the Tax Reform Act tried to curb. Arguably, the result was worse than doing nothing. Excessive credit card debt can be renegotiated or discharged through bankruptcy. But when people start using their homes as credit cards, the results can be more severe. Any downturn in home equity, especially a prolonged one such as we have seen since 2007, risks the loss of people's homes when home equity loans cannot be paid. President Obama should have taken a page from Reagan's book and asked the Treasury to do another comprehensive study of the tax system. Sadly, he failed to do so in his State of the Union address on Jan. 24. In fact, he went in the opposite direction from tax reform, proposing a laundry list of new tax preferences for clean energy, hiring veterans, stimulating manufacturing and other purposes. Any worthwhile tax reform effort needs to start by getting rid of such narrowly targeted tax gimmicks. According to news reports, the White House still plans to propose some sort of corporate tax reform next month. While the corporate side of the tax code is in dire need of reform, it may be unrealistic to confine tax reform to the corporate sector. It would have been better to approach tax reform in a comprehensive manner, as the Reagan administration did in 1984.