View Full Version : A Tax Reform Vision

john l
12-03-2010, 08:31 AM
A Tax Reform Vision
Published: December 2, 2010

I have a vision.
Sometime over the next couple of weeks, President Obama issues a statement that reads: “Over the past several months, Republicans and Democrats have been fighting over what to do with the Bush tax cuts. I have my own views, but it’s not worth having a big fight over a tax code we all hate. Therefore, I’m suspending this debate. We will extend the Bush rates for everybody for one year, along with unemployment benefits. But during that year we will enact a comprehensive tax reform plan.

“The plan we will work on this year will look a bit like the 1986 reform plan. We will clean out the loopholes. We will take on the special interests. We will lower rates and make the tax code fair.”

Then Obama asks his aides to come up with a tax reform proposal he can lay before Congress. The State of the Union, he knows, is the one big chance he will have to redefine himself before the American people. On the big night, Obama stands before Congress. He gestures over to a giant stack of papers. “This is our tax code,” he tells the American people. “It’s rotten and we’re scrapping it.”

Then the president outlines his own proposal. It looks a bit like the plan hatched by Senator Ron Wyden, a Democrat from Oregon, and Judd Gregg, the outgoing Republican senator from New Hampshire.

The Wyden-Gregg plan simplifies the tax code and reduces the number of rates from six to three. Most taxpayers would be able to use a one-page 1040 I.R.S. form. It preserves some deductions, like the mortgage interest deduction and the child tax credit, but eliminates many others. The Heritage Foundation calculated that the measure would reduce the federal deficit by $61 billion a year and create 2.3 million jobs. The Tax Policy Center found it would make the tax code more progressive and reduce the tax bill for most families making less than $200,000.

In my vision, the president would lay something like this at the feet of the Republicans and ask: Are you ready to have a conversation, or are you the party that can’t say yes?

This would put the Republicans in an interesting position. On Thursday, I debated Paul Ryan at the American Enterprise Institute on the proper role of government. Ryan is the incoming House Budget Committee chairman and one of the most intellectually formidable members of Congress. I really admire many of the plans he has put forward to bring down debt and reduce health care costs.

But Ryan and I differed over President Obama and the prospects for compromise in the near term. Ryan believes that the country faces a clearly demarcated choice. The Democratic Party, he argues, believes in creating a European-style cradle-to-grave social welfare state, while the Republicans believe in a free-market opportunity society. There is no overlap between the two visions and very little reason to think they can be reconciled.

I argued that Obama and his aides are liberal or center-left pragmatists and that nothing they have said or written suggests they want to turn the U.S. into Sweden. I continued that Ryan’s sharply polarized vision is not only journalistically inaccurate, it makes compromise and politics impossible. If every concession is regarded as an unprincipled surrender that takes us inexorably farther down the road to serfdom, then nothing will get done and the nation will go bankrupt.

If Obama moved vigorously on this sort of tax reform, starting at the State of the Union, he would vindicate my description of him, which would be nice. He would also change the tone in Washington. The health care reform debate was polarized, but the tax reform debate is not. Almost everybody agrees on the basic outlines. The current system is so rotten everybody could get something they want out of reforming it.

The tax reform process would reintroduce the parties to each other, and reduce the Manichean caricatures that have built up in their heads. It would also shift attention from the same-old big government-versus-small government debate toward more concrete challenges: shifting resources from unproductive consumption to more productive investment; shifting money from the affluent elderly to the struggling young; eliminating the parts of the tax code that erode personal responsibility and buffing up the parts that encourage responsible risk-taking.

This tax reform debate would then lead naturally into the larger debate about federal spending and debt. If you looked at the various commission reports that have been released recently, you would find that here, too, there is more overlap than one would have imagined.

Some days, gridlock seems permanent and fatal. But it could be that we’re on the cusp of a period of surprising instability, if only President Obama would grab tax reform and use it to smash the crust of the status quo.

12-03-2010, 08:46 AM
Honestly, I've lost track. When the tax cuts went in I recall my cut, based on 90k a year, just about put tires on my 03 Forrester. Is this the cut I'm supposed to back giving millions to billionaires to keep? Really, what am I missing........has my wife been salting away the big tax cut bucks in her get away fund?

David G
12-03-2010, 10:11 AM
The devil's in the details. Particularly when it comes to tax policy.

In general, though, I trust Brook's judgment. I absolutely trust our boy Ron Wyden's. Having also lived in New Hampshire... I also know a bit about Judd Gregg. I trust him. The plan itself, as outlined here, sounds promising.

12-03-2010, 11:23 AM
It all sounds plausible except for one small detail. The Republican party is not interested in working with the Democrats or the President on anything. They are simply focused on obstructing as a plan to retake the WH.

Vince Brennan
12-03-2010, 11:35 AM
Don't kid yourselves.... the Politicians as a group (and most certainly the IRS infrastructure, tax attourneys and tax preparation companies as well) will do their damn'dest to ensure that the tax codes only get - if anything - more labrynthine and indecipherable. These people have no interest in a simplified tax code which would eliminate an enormous number of jobs now occupied by those whose chosen profession it is to sort thru the regulations and charge you money. (I know, I'm one of 'em!)

"Greater good for the greater number", forsooth! The cry of this country is and has always been, "More money for me and (censored) you!"