Obama Considers Tax Code Overhaul

Reform could make taxes simpler and lower, raise revenue, and even get bipartisan support

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In the wake of fierce debate over tax cut extensions, the White House is considering a push for a massive overhaul of the income tax code. The effort could take years but offers some hope of bipartisan cooperation after years of congressional gridlock."The objective," The New York Times' Jackie Calmes reports, "is to rid the code of its complex buildup of deductions, credits and exemptions, thereby broadening the base of taxes collected and allowing for lower rates," something recommended by President Obama's deficit redution commission. The change is needed, businesses say, because the expense of figuring out how to comply with the complicated tax code is making them less competitive overseas. The debt commission said the change was necessary for the nation's fiscal health.

Obama could see a political dividend, too: bringing a tax reform debate front and center "could seize an opportunity to take the offensive in dealing with the newly empowered Republicans in Congress, repair his strained relations with business and embrace a potentially powerful theme heading into his re-election campaign," Calmes writes. But to keep expectations from getting overheated, White House officials caution that it took Ronald Reagan three years to pass the last such reform, in 1986, and along the way, the overhaul often looked like a lost cause.

  • Overhaul Is Absolutely Necessary, Reuters' Felix Salmon argues. "Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America's long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke." Salmon adds that income taxes are dropping, while employment taxes, which are more regressive, are an increasing share of government income. "If you were structuring a tax code from scratch, it would look nothing like this." Unfortunately, both parties find tax hikes politically impossible, but without them, we're "doomed."
  • Getting a Lesson in Triangulation?  Jeremy P. Jacobs wonders this at Hotline on Call looking at the news about the overhaul idea. Bill Clinton is meeting with Obama Friday. The meeting raises the question, can "Clinton triangulation--pivoting to popular issues that can draw bipartisan support --even work for Obama right now? The most important difference between 1990s and now is the economy; Clinton didn't have to fight a recession that is lasting much longer than the White House would like. "
  • The End of Supply Side Economics? "The chief contribution of Obama's deficit commission was to demonstrate that there is at least some potential to get some Republicans to sign onto the idea of raising revenue while cutting rates by reducing expenditures," media consultant Andrew Sprung opines on his blog. "The Times claims, too, without quoting anyone, that 'people in both parties agree that the next tax-overhaul effort would almost certainly have to raise revenues to address the nation's growing fiscal problems.' Really? Could supply-side mania be subsiding just a little in the face of mammoth deficits? ... [I]t's remarkable how even the outline [of] one major compromise over tax rates and tax breaks changes one's sense of the possible."
The key to Obama winning the next two years politically (he's already won them economically by getting a GOP-backed second stimulus) is to use his next key speech to make one clear commitment: he will do everything in his power to end the long-term debt by the end of his first term. He will do it in part by sweeping tax reform and simplification--the sugar that will make the medicine go down. He should eschew any classic SOTU laundry list and go for the central, simple message, repeated again and again and again with as much insistence and regularity as 'hope and change' in 2008.
  • Kill the Corporate Tax, Replace It With a Carbon Tax, Mother Jones' Kevin Drum argues. "The corporate income tax, after all, is an absolute sink of inefficiency and corruption, every congressman's favorite playground for paying off campaign donors and rewarding favored industry groups." Plus, the reforms of 1986 were undone only a decade later."So why not just get rid of it? Corporations would love it, Republicans would love it, it would put lots of tax lawyers out of work, and replacing it with a carbon tax would be great for the planet."
This article is from the archive of our partner The Wire.