U.S. tax policy should encourage growth.

• Author: Weinbach, Lawrence A.

As we move toward the 21st century, American businesses face opportunity on an unprecedented scale. But our ability to take advantage of these opportunities will be lost if the national deficit is at an unprecedented height, and if Congress continues to create uncertainty with a wishy-washy approach to economic growth and taxation.

Left unresolved, our current problems will erode our entire economic infrastructure. Yet we have been fiddling with a tax policy that does not address the most basic economic problems we face. in fact, I think it is safe to say that we really have no tax policy at all. What we have is a collection of reactions to a mixed bag of political considerations.

To turn things around, we must reduce the deficit, increase productivity, provide incentives to grow our economy, and provide incentives for educating our young. Without a tax policy designed to encourage these goals, we face the reality of a slow but steady decline in our economic influence, a decline that could lead directly to the decline of our political influence.

Our tax laws have become very complex. Some might think that, as head of an organization with close to $800 million in tax service revenues this past year, it would be odd for me to argue in favor of a less complex tax law. But the degree of complexity, one way or another, is not really the central issue. Virtually all businesses, including my own, ultimately do better in a stable, prosperous economic environment. So what is really important is not how simple or complex our tax laws are, but how consistently those laws encourage a well-defined economic strategy.

The Tax Reform Act of 1986 did not do this, because it did nothing to increase the national savings or decrease the deficit. Caught in the middle between pressures to reduce the deficit on one hand, but not raise tax rates on the other, designers of the law aimed to make it "revenue neutral:" to generate neither more nor less revenue than previous law. At the same time, it lessened the desirability of IRAs and other kinds of tax-sheltered savings, and scaled back investment incentives such as the investment tax credit.

So the deficit continued to grow, aggravated by financial crises, and our overall competitiveness continued to decline.

The 1990 budget battle

In 1990, the deficit became too big to ignore. So, in May, President Bush and Congressional leaders met in a summit to develop a budget for 1991.

On the surface, the agreement they...