Subcommittee Hearing on "Proposing an Amendment to the Constitution of the United States
With
Respect to Tax Limitation" - March 18, 1997
Testimony of Samuel C. Thompson
Thank you Mr. Chairman find other members of the subcommittee. I appreciate the opportunity to express my views on H.J. Res. 62, which "Propose[s] an Amendment to the Constitution of the United States with Respect to Tax Limitation."
My comments today are focused on the provision of H.J. Res. 62 that would amend the Constitution to require a two-thirds majority vote for any bill to increase the internal revenue... unless that bill is determined at the time of adoption, in a reasonable manner prescribed by law, not to increase the internal revenue by more than a de minimis amount."
I am a specialist in Federal income tax law and have been either a tax lawyer or a tax professor since graduation from law school in 1971. My comments, therefore, are limited to the impact of this provision on the structure of the Federal income tax.
I believe that the adoption of this supermajority provision would have the perverse effects of (1) encouraging the search for tax loopholes, (2) penalizing the American public for the inevitable mistakes that will be made in the tax legislative process, and (3) needlessly hampering the ability of Congress to conduct fiscal policy.
A. Encouraging loopholes
On March 6, 1996, I testified before this Subcommittee on H.J. Res. 159, which would
have required a two-thirds majority vote for any bill to "increase the rate or base of any tax..."
It was clear that H.J. Res. 159 would have required a separate supermajority vote on all base-
broadening provisions of a tax bill even though the bill may have resulted in an over-all
reduction
in taxes. It is not clear from the text of H.J. Res. 62 whether it has this same effect or in the
alternative would apply only to a bill that leads on an over-all basis to an increase in tax. If H.J.
Res.
62 applies separately to each provision of a bill that broadens the base or increases the tax rate,
then
as a practical matter a supermajority vote will be required on every piece of Federal income tax
legislation, including legislation that may on an over-all basis result in a tax reduction. If, on the
other hand, H.J. Res. 62 applies on an over-all basis, then any attempt by Congress or the
Treasury
to close any loophole by a base broadening provision would have to he accompanied by another
provision that reduced the tax revenues by an offsetting amount, unless a two-thirds majority
could
be mustered.
From an economic perspective, since this legislation makes it more difficult to repeal
loopholes, it makes loopholes more valuable. And, since loopholes will become more valuable,
sophisticated taxpayers will devote more time lobbying Congress in an effort both to enact and to
preserve loopholes. Thus, one perverse effect of this amendment would be to encourage
lobbying
efforts to enact and to preserve loopholes.
B. Penalizing the American Public for Mistakes in the Tax Legislative Process
This amendment would also penalize the American public for mistakes made in the tax
legislative process. For example, assume that after a adoption of this Constitutional amendment,
Congress adopts a flat tax. Assume that before enactment it is estimated that the flat tax will
reduce revenues by $100 billion. It turns out, however, that the revenue estimates are wrong and
the actual revenue loss is $200 billion, which will lead to a significant increase in the budget
deficit.
The Treasury immediately proposes legislation to increase the revenues by $100 billion, thereby
restoring fiscal responsibility. The legislation is, however, opposed by powerfuI special interest
groups who will prevail if they can convince just 34% of the members of either the House or the
Senate to vote against the amendment.
It is hard to believe that the drafters of H.J. Res. 62 could intend that this type of mistake in
the tax legislative process could only be corrected with a supermajority vote.
C. Flexibility in Conducting Fiscal Policy.
Adjustments in the rate structure of the Federal income tax are powerful tools of fiscal
policy. There are times when the economy needs a general rate reduction, as was generally
thought
to he the case in 1981 when Congress enacted the Economic Recovery Tax Act of 1981, and
there
are other times when the economy needs a general rate increase, as was generally ihought to be
the
case in 1984 when Congress enacted the Deficit Reduction Tax Act of 1984.
Adoption of this proposed Constitutional amendment would put an unnecessary restraint on
the ability of Congress properly to conduct fiscal policy. Indeed, it could even make needed tax
reductions less likely, because legislators would realize that the supermajority provision would
make it more difficult to take corrective action if a tax reduction turned out to be fiscally
imprudent.
Thus, this bill could lead to grid-lock in the conduct of fiscal policy through the Federal income
tax
system.
D. Summary
The core problem with this proposed Constitutional amendment is that it would give
special interest groups the upper hand in the tax legislative process. Once a group of taxpayers
receives either a planned or unplanned tax benefit with a simple majority vote of both
houses of
Congress, the group will then be able to preserve that tax benefit with just a 34% vote in
one house
of Congress. Thus. this amendment would create an unlevel playing field in the tax
legislative
process. Indeed, I believe that if enacted this amendment would become known as the
"Tax Loophole
Preservation Amendment to the Constitution."
This proposal, I submit, is a bad idea and should he flatly rejected.
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