How a Tax Bill Becomes a Law, 1986 vs. 2017 | The CPA Journal
An Historical Perspective on the Passage of TRA ’86
The Tax Cuts and Jobs Act, the most significant overhaul of the federal tax system since the Tax Reform Act of 1986 (TRA ’86), recently passed Congress and was signed into law by the President. This occasion presents an opportunity to reflect on the passage of TRA ’86 and the role that the NYSSCPA played in the process on behalf of its members. The following interview with former NYSSCPA Deputy Executive Director Walter Primoff describes the history of the Society’s efforts and the differences between the process for enacting TRA ’86 and today’s Tax Cuts and Jobs Act.
The CPA Journal:
During the TRA ’86 negotiations in Congress, you were the NYSSCPA’s Director of Professional Programs and Tax Policy who coordinated the Society’s legislative efforts. How did a state society get so involved in Washington, D.C., tax reform activities?
There were several converging factors. First, in early 1984 President Reagan asked the Treasury Department for a tax simplification plan for release after the 1984 elections. Treasury scheduled preliminary hearings, some on issues with major New York impact. Dave Berenson, one of the Society’s long-active leaders then working in Washington, D.C., let then-NYSSCPA Executive Director Bob Gray know about these provisions. As a result, Bob went to Washington to testify on behalf of the Society.
As instructed, Treasury issued its Treasury I discussion document in late fall, calling for sharply lower tax rates and repealing many individual and business deductions. That’s when I joined the Society staff. The Society’s leaders decided we should be more involved in tax reform activities, which Bob asked me to coordinate. In spring 1985, the President issued his formal tax proposal to Congress. Then I took a call from Jay Kriegel, [New York City] Mayor [John] Lindsay’s former chief of staff, on behalf of the Association for a Better New York (ABNY), which was led by New York real estate executive Lew Rudin. Jay asked us to join and be a technical resource to a new “Campaign Against Double Taxation” coalition that would nationally oppose the proposal’s SALT [state and local tax] deduction repeal. That’s what got us started.
Did the Society have prior experience lobbying in Washington? And were there problems being on the AICPA’s turf?
We had little experience going in—and I had none—but several things came together. First, New York had Senator [Daniel P.] Moynihan on the Finance Committee and four Representatives on the Ways and Means Committee, three of whom were close with two now past Society presidents. Bert Mitchell opened doors to Congressman Rangel. Mike Borsuk introduced us to the two Long Island Representatives on Ways and Means. I called Senator Moynihan’s office on my own. All welcomed our help and we worked well with their staffs. It became easy to get meetings, and regularly travelling to D.C. back then was relatively convenient and inexpensive.
Our biggest issue was SALT deduction repeal, which the AICPA was not addressing, and we informed them that we would be working with the New York Congressional delegation as part of a coalition opposing repeal. We developed a good strategic plan with great people and developed a reputation for giving competent, objective advice, which was in short supply in Washington. This led to the broadening of our scope. We were asked to work with various Ways and Means, Senate Finance, and Joint Committee of Taxation staff as well as other members of Congress who wanted the CPA profession’s views on both tax and some non-tax matters. This did produce some conflict with the AICPA at the time, which eventually led to the creation of what today is its very effective Washington office.
We were asked to work with various Ways and Means, Senate Finance, and Joint Committee of Taxation staff as well as other members of Congress who wanted the CPA profession’s views on both tax and some non-tax matters.
You mentioned a good strategic plan with great people. Can you tell us more?
There are times when you have the right people at the right time and this was one of them. We were fortunate that Art Hoffman was chairing our Tax Division. He had just represented the AICPA’s Tax Division in a successful debate with the Treasury official primarily responsible for Treasury I. He was supported by Roxanne Coady as our vice-chair, the other members of our Tax Executive Committee, and the chairs of the Society’s 19 technical tax committees, all first-rate. On the staff side, in addition to Bob Gray and me, the Society’s current executive director Joanne Barry headed our communications efforts. Together, we came up with a plan and format for a comprehensive Society analysis with recommendations on the Reagan tax proposals.
Art Hoffman had this unique gift for strategizing the exact steps necessary to continually achieve committee consensus and was a very persuasive writer, qualities he later brought to the AICPA when he chaired its Tax Division. Our Tax Executive Committee asked each technical committee to provide deadline commentary on the proposals in its area. Most important, each committee chair was told to emphasize objectivity—noting that comments primarily supporting clients’ special interest points of view would be weeded out. In the few instances that happened, Arthur made appropriate calls to the committee chairs.
This was an unprecedented project for the Society and the amount of member tax expertise and experience brought to it through the committee process was enormous. Then it became a major effort coordinating all of the people and drafting and honing the Society’s comments, which we brought to Washington in fall 1985. The comments were recognized for their quality and, especially, objectivity. By the time TRA ’86 passed a year later, Bob Gray, Arthur, Roxanne, Joanne, and I had become a seasoned and respected CPA professional issues and Washington legislative policy team, working primarily out of a New York office on a “shoestring” budget.
The Society’s 1985 comments predicted the 1989 Savings and Loan (S&L) crisis. How did that happen?
The overriding point of view of the Society’s comments was through our members’ unparalleled tax and related business expertise and experience. We highlighted that our members practice locally, nationally, and internationally. Our analysis and recommendations were based on decades of experience understanding how the tax law affects the economic decisions made by individual clients at all levels of wealth and by business clients in virtually every industry. Therefore, we have special expertise understanding how taxpayers of all stripes would likely respond to the President’s tax proposals.
So we emphasized that many of the President’s proposals would change tax rules that had driven the economics of entire industries for decades and that no tax reform benefits were worth the risk of the severe economic damage that might ensue. The sudden end of real estate tax shelters was such a change. The failure to grandfather existing transactions led to the collapse of thousands of real estate limited partnerships, that in turn could no longer make payments on a massive number of mortgages that were issued to them by S&Ls. That was a—perhaps the—key factor that led to the 1989 S&L crisis, which likely cost the government far more money than the cost of grandfathering existing shelters. The Society’s comments also mentioned the likely impact on several other industries, but the effect on real estate limited partnerships turned out to be the most severe.
Why do you think Congress ignored the Society’s views related to the real estate shelters?
At one point, the Senate bill was virtually dead because of the impossibility of repealing enough loopholes to achieve the desired lower tax rates while lobbyists were watching. As a last resort, Republican Senate Finance Committee Chair Bob Packwood [Ore.] convened secret meetings with a group of three of his Republican and three of his Democrat members, including Senator Moynihan (D-N.Y.) and Senator Bill Bradley (DN.J.). The goal was to hammer out as fair a bill as possible, eliminating enough loopholes to significantly lower the maximum individual rate. Amazingly, they did it, but all real estate shelters got caught in that process. The group’s bill went through the Finance Committee and it became almost impossible to make further changes under the Senate rules attached to it. Essentially, the senators considered their bill a “miracle” and were willing to accept the political heat, potential economic damage, and lobbyist outrage from any whatever failings it had. From today’s lens, the real miracle is that the secret meetings didn’t leak.
With that history, what is your take on the difference in the process for enacting TRA ’86 and the current tax reform effort?
The big differences are the compressed time frame for enacting the legislation; today’s sharply increased partisanship, along with the personal animosity between Democrats and Republicans; and the ever-increased role of lobbyists.
First, in terms of time frame, Treasury I was introduced in fall 1984, a full two years before the TRA’s passage. Congress held many public hearings, enabling any legitimate party with a constituency to present its views on the relevant proposals. In contrast, the current bill came together without public hearings and little time for anyone to react. When our coalition opposing SALT deduction repeal started, it had a full year to create and execute its campaign. It created a great TV ad targeted to key states with an angry man holding a newspaper with a SALT deduction repeal headline. He got madder and madder until steam came out of his ears and the paper started burning. The coalition campaign included mobilizing school boards and counties throughout the country, who contacted their local representatives and senators with concerns about the impact that repeal would have on them. Of course, it helped that [former New York] Governor Mario Cuomo was the face of the campaign. There was no time for such an effort this time around. Fortunately, the coalition’s campaign worked, and the SALT deduction survived the secret meetings held by those seven senators. It also helped that Senator Moynihan was one of the seven.
Second, a key factor in the passage of TRA ’86 was the ability to get a bipartisan deal made back then. Yes, there was partisan rancor. Both the House and Senate bills had near-death experiences because of it. But here’s an anecdote showing the difference between then and now.
Late one Thursday afternoon, I was part of a small group finishing a meeting in the expansive Ways and Means conference room when Democrat Chairman [Dan] Rostenkowski [D-Ill.] walked in. He was a great raconteur and had us in rapt attention. In between stories, someone asked why he was there so late on a Thursday. He said, “I’m waiting for a friend.” A few minutes later in walks Republican House Minority Leader Bob Michel [Ill.], who sits down to talk with us. The two were from adjoining legislative districts. On Thursday nights, they would often share the drive from D.C. to Illinois and get back Monday in time for Tuesday’s House session. Today, most Democrats and Republicans wouldn’t share a drive from the Capitol to the Lincoln Memorial or share a cup of coffee in a Congressional dining room. Just a few days before its passage, TRA ’86 was almost killed by some renegade Republican representatives; Congressman Michel came to the rescue. Just maybe, those rides to Illinois and back to Washington had something to do with it.
It also helped that President Reagan had his “I’ll take 70% of a loaf” compromise philosophy. He had to let Cuomo win the SALT issue to get his 70%. Reagan once noted that even half a loaf is sufficient if it gets things moving in the right direction. Today each party wants “all or nothing.” The inability for either party to compromise is likely preventing senators and representatives from properly representing the interests of their constituents. The impact of SALT deduction repeal is likely to be very harmful to New York, New Jersey, and Connecticut. If the Democrats pushed for a bipartisan bill, could they have saved SALT? No one will find out, because today’s politics won’t allow it. The Democrats think that any accommodation with Republicans will put them in a primary that costs them their seats, and vice versa. The same would be true if Democrats controlled Congress. It would be equally impossible for Republicans to compromise in today’s environment.
I return to the question the Society asked in 1985: Is it worth the risk of economic dislocation to learn how this kind of change will play out?
Finally, the role of lobbyists has grown even greater than it was in 1986. Whether someone likes or loathes President Trump, he basically asked for a bill that would put more money in middle-class pockets, would sharply lower rates on American corporations in hopes of increasing their competitiveness, and would encourage these companies to bring back the hundreds of billions in cash parked overseas to hopefully invest in our economy. Such a bill would not require 1,000 pages of law. The final version of this bill will likely have dozens of special interest provisions that were actually written by lobbyists rather than Congressional staff. For TRA ’86, the lobbyists were certainly ever-present, but the bills were primarily written by staff from the House Ways and Means, Senate Finance, and Joint Committee of Taxation. Today, the lobbyists are actually writing large chunks of the bills. Also, TRA ’86 dismantled the tax shelter industry, which was supported by an army of lobbyists. I suspect the special interests created new tactics to assure that they were not blindsided this time. The full TRA ’86 saga is in the book, Showdown at Gucci Gulch. Much of its take on how legislative sausage was made is still relevant.
Unlike TRA’86 the House-Senate Conferees for the 2017 bill sharply reduced the SALT deduction by capping combined tax deductions at $10,000. The full deductions have been baked into our economic pie for generations. Congressional revenue estimators can reasonably predict short-term tax revenue impacts of such changes, but different experts disagree on the broader economic impact. So I return to the question the Society asked in 1985: Is it worth the risk of economic dislocation to learn how this kind of change will play out?