The budget debate in Washington goes on, highly partisanand seemingly with little prospect for compromise, much lessprogress. Even after the November elections, it's likely neitherparty will gain enough power to move fiscal matters in a concerteddirection. Still, for all the prospect of an impasse, tax reformremains possible. It would be an overstatement to say thatsubstantive reform is probable, but the prospect is much greaterthan most investors and business people seem to believe.

For all Washington's intense partisanship these days, similartax reform proposals have surfaced with remarkable frequency onboth sides of the aisle. All, in one way or another, would reducestatutory tax rates and broaden the base by eliminating taxwrite-offs and other breaks. Though prospects for such reforms seemfar-fetched, their reoccurrence speaks to a broad underlyingappeal.

This latest round began in 2010 with the Bowles-Simpsonproposals for overall deficit reduction. They would have cut thetop personal tax rate from 35% to 29% and more than made up thelost revenue by eliminating deductions, tax expenditures and taxcredits throughout the personal and corporate code. Though thecommission that made these proposals had a bipartisan composition,both Democrats and Republicans rejected the plan, although notbecause of the nature of the reforms. Republicans were opposedbecause Bowles-Simpson would have raised taxes overall andDemocrats objected because the accompanying spending restraintswould have hit social programs hard.