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.
*I'm just projecting, here.
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Derek Thompson is a staff writer at The Atlantic, where he writes about economics, technology, and the media. He is the author of Hit Makersand the host of the podcast Crazy/Genius.