My favorite tax blog TaxVox is reporting that the feverishly* anticipated report from the White House tax reform panel will be delayed until after the holidays. And like that, my Chrismukkah season is shot.
But Howard Gleckman reminds me that, even though I'm always game for fresh ideas about reforming the tax system, this report -- like a new universal remote for your home entertainment center -- is going to disappoint a lot of people, no matter what.
The panel has been severely constrained in its ability to consider broad-based reforms by President Obama's insistence that taxes cannot be raised on families making less than $250,000. Thus, it is only looking at tax simplification, enhanced enforcement, and corporate reforms.
That's a shame. I understand the motivation here. Obama wants the report to be public, and if there are ideas in the public report that include raising taxes on families making under $250,000 (something Obama promised not to do in the campaign) the political pyrotechnics over Obama's "reversal" could put the entire noble project in jeopardy.
Still it bears repeating that I don't know any serious thinkers who say we can fix the deficit without raising taxes beyond the top one percent. And yet the Obama budget for 2012 envisions extending the Bush tax cuts, extending Make Work Pay credits, patching the AMT (which would compel more high-bracket earners to pay more). Here are some key graphs I plucked from the Tax Policy Center:
For reference, "Current Law" (the red bar) assumes the Bush tax cuts expires and the AMT extends beyond the patch across the 80th through 95 percentiles. The "Admin Baseline" (the blueish middle bar) assumes an extension of: (1) The Bush tax cuts into 2012, (2) the AMT patch and (3) 2009 estate tax law. Against that baseline, Obama's 2010 budget would cut effective tax rates from the lowest quintile to the 95th percentile. Here's what the picture looks like when you zoom in on the richest 20 percent:
What does it all mean? The Obama budget results in a significantly more progressive tax system, but both the Admin Baseline and the 2010 budget reduce overall effective tax rates to 20.7 percent from 23.4 percent.
There are two questions here: (1) Can we fix our structural deficit by cutting taxes for everybody from the first to 99th percentile and (2) Should we? I think the answer to both questions is no. There is a ceiling where soaking the rich becomes both fiscally irresponsible and economically detrimental. As the TPC puts it:
To the extent that tax burdens are to be increased, there are three options. Tax rates could be raised in the existing system, but that would be extremely inefficient. Tax reform might raise revenues more efficiently, but that is excruciatingly difficult politically. That leaves the possibility of a brand new tax and a VAT is a very likely candidate.
I agree. As one of the only industrialized countries without a value-added tax, I think now would be a good time to consider its place in the almanac. Unfortunately, a tax on consumption impacts all consumers, and that includes, well, 99 percent of tax payers. I want an almanac of tax policy reforms. But not if it's just going to be the same old laundry list of strategies to shuffle tax burdens around the top one percent.
