The Kemp Tax Commission, Looking Up Jude Wanniski June 13, 1995

House Speaker Newt Gingrich and Senate Majority Leader Bob Dole two months ago asked Jack Kemp to assemble a “tax commission” that would study the various proposals aimed at fundamental reform of the federal tax system. At the time, we didn’t take it seriously, because it seemed to be primarily slung together to keep Kemp politically occupied. It has no official status. Nobody will be bound in the slightest way by its findings or recommendations. The list of names that first circulated as proposed commission members all seemed to come from Kemp’s Rolodex, which would assure the work of the commission would not be taken seriously. And at first it seemed Kemp would even have to find a way to finance it. 

Well, my goodness, the first administrative meeting of the commission is scheduled to take place tomorrow in Washington, with Gingrich and Dole giving it a sendoff, and it now looks as if it could amount to something after all. Most impressive is the inclusion of John Snow, chairman and CEO of CSX Corporation, head of the Business Roundtable, representing the very top of the business mountain, the Big Guys. When you have Snow and Jack Faris, president of the National Federation of Independent Businesses, who represents the bottom of the mountain, the Little Guys, you have most of the mountain. If these two men sign whatever report emerges, supposedly by Thanksgiving, and there are no significant defections in between, there is an excellent chance the commission will have produced the outlines of the 1997 tax reform that will take us into the next century. 

It is by now becoming obvious to the Beltway Establishment that it must provide tax simplification in 1997 or the voters will go outside the Establishment. Ross Perot scared the wits out of the Big Guys in 1992 when, in the earliest stages of his independent candidacy, he proposed writing a new tax code on a blank sheet of paper. It is now becoming conventional wisdom that the presidential candidates of the two Established political parties will have to compete on this turf. There is no way President Clinton could contemplate re-election against a tax-reform Republican candidate unless he has a plan of his own. The Kemp Commission has a shot at producing the tax planks of both political parties, in the sense that its consensus outline could provide the starting point for discussions in both parties. There’s no need to have two commissions when the entire business community is represented by one. 

The other commission members are: Ted Forstmann of Forstmann, Little & Co., one of the most creative financiers of our era; Dean Kleckner, the Reaganesque president of the American Farm Bureau; Ken Blackwell, the Ohio state treasurer; Matt Fong, the California state treasurer; former governors Carroll Campbell of South Carolina and Pete Dupont of Delaware; Herman Cain of Godfather Pizza; Shirley Peterson, president of Hood College; John Wieland, an Atlanta homebuilder; Loretta Adams, an Hispanic small-business woman from San Diego; and Ed Feulner, president of the Heritage Foundation, which, with Dole’s foundation, is helping Kemp’s Empower America raise the money to finance the enterprise. Malcolm (Steve) Forbes was originally on the panel, but was scratched when his incipient presidential candidacy surfaced. 

The objective of the commission will be to produce a consensus outline of a “fairer, flatter, simpler” tax code. The commission will probably fail if all it does is replicate the work of House Majority Leader Dick Armey. His 17% Flat Tax proposal is the most prominent of the major reforms kicking around and Kemp’s favorite going in. Its economics may be ideal, but it will probably have to be developed to accommodate a variety of cultural differences and practical considerations before it is politically ripe. It may be a bit too flat, a bit too simple, a bit too fair to overcome the political forces of inertia. Milton Friedman was right when he said there are too many lawyers and accountants and other vested interests who benefit from the existing system to permit the Armey flat tax from being enacted. The Kemp Commission has to find a way to disarm this powerful opposition. The most obvious answer is to leave enough complexity in the system to give the most powerful forces of opposition an acceptable capital loss in their career investments. The complexity can be phased out over time, which gives these entrenched forces an opportunity to shift their talents to serving growth instead of misery. In other words, give the devil his due.

The most important development to put wings on the Kemp Commission was the recent statement of Chairman Bill Archer of the House Ways & Means Committee. In our system of government, after all, Archer is the most powerful tax man in America. When he says the Sixteenth Amendment should be repealed in order to pull the income tax out by its roots -- and Darth Vader’s IRS along with it -- the Establishment takes note. It also takes note of Rep. Sam Gibbons of Florida, the ranking Democrat on Ways & Means, at Archer’s side, nodding approval. Now, the chances of the Sixteenth Amendment being repealed anytime soon are not high, but Archer deserves the Congressional Medal of Honor for ringing that bell with such gusto. The world will never be the same. In the context of Perot’s 1992 blank-sheet-of-paper promise and the November 8 earthquake on Capitol Hill, the vast network of lawyers and accountants know they have their work cut out for them. At the grass roots, Archer’s declamations against the IRS will resonate. On Meet the Press Sunday, Rep. Charles Rangel [D-NY], another member of Ways & Means, denounced Archer’s idea of replacing the income tax with a consumption tax, on fairness grounds -- essentially arguing that this benefits the rich at the expense of the poor, whose tiny incomes relative to the rich have to buy the same bag of groceries at the supermarket. 

The Kemp Commission has to grapple with such matters. How can the interests of consumers and producers be composed? Of small producers and big producers? Of poor consumers and rich consumers? Shall saving be encouraged, or investment? Risk-taking or aggregate demand? How much progressivity is fair? What about homeowners? Charities? Inheritances? Exporters? Labor intensive industry? Capital intensive? How long a transition? This suggests that at the end of the day the Kemp Commission will come to the same grief as the government has in trying to simplify the system in one doomed reform effort after another. The good news is that Kemp hit on the idea of asking Grace-Marie Arnett, who has no known expertise in tax policy, to serve as executive director of the commission. Ms. Arnett’s expertise is in consensus building. You may recall that during the 1993-94 debate over health care, Sen. Bob Bennett [R-UT] asked Ms. Arnett, a health-care policy consultant in Washington, to survey the policy experts in the Washington think tanks. She formed the Consensus Group, which drew together the disparate voices that had comprised a Tower of Babble at the Heritage Foundation, Cato, the American Enterprise Institute, and Empower America. The consensus process began by getting the experts to discover what areas they agreed upon, pushing that envelope from inside out. As consensus grew and blossomed, it gave the GOP leaders in Congress the footing they needed to drive back Hillary’s Rube Goldberg health-care scheme. By naming Arnett executive director, Kemp signals the conservative political universe that his objective is consensus, not his own tax agenda. If, in November, the group can produce a report all its members can sign with some enthusiasm, it will be quite an achievement.