Student Commentary

2018 Fogel Lecture Reflection: A Divided Democracy Drives the Deficit

2018 Fogel Lecturer Professor Michael Graetz

On March 28th the annual Frank & Rose Fogel lecture was given at Temple University Beasley School of Law. The Fogel lecture was established in 1987 through a bequest from Temple Law graduate Frank Fogel with the goal of supporting public lectures on legal topics. Recently, the Fogel lecture has been focused on the area of tax law with previous lecturers including United States Tax Court Judge, The Honorable Cary D. Pugh, Former Chief of Staff of the Joint Committee on Taxation Hank Gutman, and Former IRS Commissioner Larry Gibbs. This year the law school was honored to host Michael Graetz as the Fogel Lecturer.

Michael Graetz, a renowned expert on domestic and international tax law, is an Alumni Professor of Tax Law at Columbia University. Before working at Columbia he was a Professor of Law at Yale Law School, and served as the Deputy Assistant Secretary for Tax Policy in the U.S. Department of the Treasury under George H.W. Bush. Professor Graetz has countless publications, his most recent being Follow the Money: Essays on International Taxation. For those law students who have taken Taxation there is a good chance that you learned about the subject through his textbook Federal Income Taxation: Principles and Policies.

Having come across Professor Graetz’s work at various times while doing research, as well as learning tax from his textbook, I was very excited to hear him lecture. Professor Graetz’s lecture, titled The 2017 Tax Cuts: How Polarized Politics Produced Precarious Policy, was focused on the recent tax legislation passed by Congress. Admittedly, I came into the lecture with a bias. I felt that the Act was poorly constructed and passed in an improper manner. However, I never paid much attention to the effects of politics on tax legislation, or even politics more generally. I was eager to hear Professor Graetz to learn if this was how things had always worked.

Professor Graetz commenced his lecture by noting that the path in which the Act became law was abnormal. The current tax reform began with a one and a half page document released by President Trump in April 2017. Seven months later, in December of 2017, a five hundred page document outlining all of the changes to the Internal Revenue Code was produced. Outside of a nine page skeleton outline released in September, there was mostly radio silence on what tax reform would look like. The document released in December (with a few alterations scribbled into the margins to secure the necessary votes and comply with the reconciliation requirements) would be signed into law in a matter of weeks.

The 2017 Act has generated comparisons to the 1986 Tax Act, due to the large scale changes that both enacted. The difference in process between the two is astounding. Two years before the prior Act’s enactment in 1986, Treasury released six hundred pages of tax reform suggestions. In May 1985, then-President Reagan released a five hundred page document with his proposed tax changes. The 1986 Act then spent 53 weeks in Congress before being signed into law. The 1986 Act also had support from members of both political parties. The 2017 Act, in contrast, was the first modern tax legislation to be passed without a single democratic vote.

The process the 2017 Act took to becoming law feels like a microcosm of our nation’s political situation. Almost all of the political stories filtering through the news and social media follow the same pattern: an issue is brought up, both parties agree that change is needed, present their own solutions, insult the other side’s solution, refuse to work together, no change is made, and finally each party loudly shouts that it is the other’s fault. Tax reform followed this same divisive path, except that a stalemate was avoided because the Republicans had enough votes to enact the law themselves.

Ultimately, this process is harmful to democracy because it leads to hastily constructed laws and actions taken just to spite the other side. Furthermore, it ingrains the already polarized state of our country. This can be seen, for example, in the Act’s $10,000 limit on state and local deductions, which is expected to have a much larger impact on democratic states.

The 2017 Act exacerbates another issue, too: our country currently has its worst imbalance of debt to income in modern history. Our national debt, currently at 75% of GDP, is barreling towards $20 billion. The 2017 Act is expected to increase this debt to 97% of GDP by 2028. This is unsustainably high and brings with it an increased risk of inflation, hampers the dollar’s role as the world’s currency, and could potentially lead to another financial crisis. The only way to combat the increased deficit from the 2017 Act would be to slash spending programs by trillions of dollars. This would further harm the lower and middle class individuals who are already being put in a worse situation by the Act’s enactment. It is unjustifiable for politicians to behave so recklessly with the federal budget when many families are just now recovering from the last recession. Even if the Democrats manage to take control of both the House and Senate in the 2018 elections, it is not likely that President Trump will allow them to pass sweeping tax reform. Nor is it possible for Democrats to gain a large enough majority to pass a veto proof tax bill. That means we are either stuck with this current tax Act for the foreseeable future, or the two parties must find some way to produce a more fiscally responsible bill. As someone about to enter the workforce, I sincerely hope it is the latter.

Watch the 2018 Fogel Lecture with Michael Graetz

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