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To reform tax code, we must end 'crony capitalism'


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We are all too familiar with the often repeated mantra "broaden the base and lower the rates" as a solution to our behemoth tax code. Weighing in at roughly 4 million words and incorporating more than 200 separate tax expenditures, commonly referred to as "tax loopholes," it is not hard to understand why reform is needed. Unfortunately, the reality is that each one of the 200 separate expenditures is tied to a special-interest group. Consequently, reform will not be an easy lift.

In looking at the question of whether tax reform is within reach, I am reminded of the Madisonian concept of political faction. In Federalist No. 10, Madison wrote of the dangers of "factions," or groups who are "united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community."

It's clear that yesterday's faction is today's special-interest group. Every year Congress must contend with a host of expiring tax provisions. As lobbyists descend on Washington to plead that the expiration of a certain tax carve-out will decimate their particular client's business or industry, I am reminded of Madison's prescience.

Despite the elaborate rhetoric, most of these tax carve-outs are nothing more than crony-capitalistic earmarks. Hollywood receives special treatment for deducting film and television production costs, the motorsports industry gets a special deduction when it invests in motorsports entertainment complexes, and even Eskimo whalers have special breaks. These three examples are only the tip of the iceberg. So, while broadening the base and lowering the rates would be the best thing to grow our economy, the factions will no doubt spend significant resources blocking reform.

In practical terms, tax reform means that hard-working American families will finally be free from the financial burden of subsidizing special-interest tax breaks. Creating a simplified tax code would not only decrease the burden on families but also small businesses. Small business owners would see reductions in both the amount of time it would take them to prepare their filings and the amount of money they would owe the federal government.

Freed from the labyrinth of our current byzantine tax code, businesses will be able to focus on growing and expanding operations. For the 11 million people looking for work, this means more job opportunities today, and for American families, it means greater upward mobility tomorrow.

Comprehensive tax reform will require comprehensive support. Given the current political dynamic in Washington -- especially the influence of the crony-capitalist factions -- we must recognize the inherent challenge of revamping the status quo. It will be an uphill climb.

Too often Washington's fat cats are able to slip special-interest provisions into must-pass legislation during the dead of night. Don't be surprised if these factions block any attempt at tax reform. Accordingly, to ensure a fair and equitable conclusion to the tax reform debate, I believe we must adopt a methodical, deliberative process in both the House and Senate. Moreover, a key to effective reform will be transparency.

Finally, while the House and Senate put the legislative machinery into action, the success of a tax code overhaul will require presidential leadership. To date, President Obama has found more benefit in political gamesmanship than consensus building. The American people are hungry for a constructive debate about how to grow the economy through a tax code overhaul, so Obama must come to the table and work with Republicans. Despite the factions, tax reform is possible and the direct effect of it will be a win for the American people and a loss for crony-capitalism.

Scott Garrett, a Republican, represents New Jersey's 5th Congressional District, which includes most of Warren County. He is a senior member on the House Budget Committee and chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises.

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