Friday, September 23, 2011

Obama's Tax Reform Ideas

We've heard much lately about reforming the tax code, shoring up loopholes, and more stimulus.  Obama's been on the campaign trail waving around a bill and demanding that Congress pass it to stimulate the economy.  A few fun facts about that:

- most of those bill-waving speeches have been taking place in front of bridges that wouldn't benefit from his bill
- Obama hasn't actually submitted the bill to Congress yet, so they couldn't pass it even if they wanted to
- Democrat Senate Majority Leader Reid has said he can't be bothered to deal with Obama's bill

It's amazing how it's still the Republicans' fault, don't you think?

Regardless, let's look at the ideas that Obama is pushing, because if he gets his way it's going to drastically impact how much of your money you get to keep from each paycheck.  Enter Daniel Henninger from the Wall Street Journal (emphasis mine):

This week, the president proposed a $1.5 trillion, 10-year tax increase and called it a path to reform. As night follows day: The Obama tax proposals, if passed, would ruin tax reform for years. More's the pity, because on taxes bipartisan support exists for reform to a degree absent on nearly any other major issue. If this president wanted to run for re-election with a pro-growth tax reform in the works, it would be his for the asking. He isn't asking.

Last year saw the release of two major bipartisan tax-reform proposals—the Bowles-Simpson commission, Mr. Obama's own creation; and the Domenici-Rivlin report from the Bipartisan Policy Center. GOP House Ways and Means Chairman Dave Camp is intent on comprehensive reform, with the support of Senate Finance Chairman Max Baucus, a Democrat.

The "Tax Reform" section of the 67-page Office of Management and Budget document detailing Mr. Obama's growth and deficit proposals reads as if written by competing factions in the White House. The case for real reform says all the right things: broaden the base, reduce rates, etc. No one would disagree. But the details are a complete disconnect.

There are no permanent tax cuts for anyone. That's off in the undefined future. The rhetoric and substance of the actual tax proposals are presented in the same angry anti-wealth rhetoric Mr. Obama has been using since his first economic message.

This is tax reform from Dr. Jekyll and Mr. Hyde. If passed, it would kill any chance of achieving the reform of the current tax system that is regarded by everyone else as a worthy goal.

Comprehensive tax reform is always political trench warfare against the status quo, requiring support from the White House and both parties in Congress. In any such effort, the current system's array of tax expenditures and loopholes—the things Mr. Obama wants to end—are the reformers' bargaining chips. The idea that Congress should end all these breaks "now" only to reduce deficits they created, get no tax reduction or simplification in return, and then do real reform later is ludicrous. What Mr. Obama is proposing would blow up tax reform.

Bowles-Simpson illustrates the trade-offs: To achieve their top marginal rate of 23% (which would turbocharge economic growth) means eliminating all tax expenditures; but if politics required keeping or revising current breaks, such as the mortgage deduction, the top rate rises to 28%. That's how tax reform works. This was the grand bargain that enabled the tax reform of 1986—cutting the top individual rate to 28% from 50%—which was led in Congress by GOP Sen. Bob Packwood and Democratic House Ways and Means Chairman Dan Rostenkowski.

When John Kennedy became president, the top marginal individual rate was 91%. But the tax code was littered with loopholes—for a reason. With such high rates, tax breaks were the only way the economy could function. Kennedy got rid of loopholes and dropped the top rate to 70%. Barack Obama wants to get rid of loopholes and raise rates.

The president's "pass-this-now" list targets tax preferences for the oil, gas, coal and insurance industries, plus an array of cats-and-dogs accounting rules and international tax practices. All these should be bargaining chips in a larger, more economically productive tax reform.

The Obama proposal would leave the current anti-growth tax morass intact, other than the higher taxes and the Buffett Rule. What he wants are wealth taxes, period. If he got that, does anyone believe he'd revisit reform in a second term?

If Mr. Obama is pushing these proposals merely to raise revenue or to create a campaign issue, so be it. If he truly thinks he is going to make the super-rich "pay their fair share," it is hopelessly naive. Over time the Beltway's tax artisans would carve out escape tunnels in the Obama tax prison. It will still be a mess.

Conventional media spin, encouraged by the Obama campaign, holds that "anti-tax" Republicans make compromise impossible. It is true, remarkably so, that an unprecedented degree of agreement has emerged among the Republican presidential candidates on lowering taxes. Less remarked is how close the GOP is now to the tax-policy ideas of the Democratic center. House Speaker John Boehner last week called for revising the tax code very much along the lines of Bowles-Simpson and Domenici-Rivlin.

Barack Obama and his perpetually angry Democratic "base" are the outliers on comprehensive tax reform. And on much else.

The willingness of Republicans to go along with Diet Democrat policies is the subject of much angst for actual conservatives.  Still, the greater danger is clearly Obama's radical Leftist agenda that would create essentially the worst possible scenario for the American economy.

If that's what you want to see, by all means, support the President's policies and plans.

Personally, I'd like to think that we value our own children's future existence more than that.

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