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POTUS and Simpson-Bowles

Jackie Calmes with an interesting piece on President Obama and the Fiscal Commission report.

In my book Balancing the Budget is a Progressive Priority, coming out in April 2012 from Springer, I write that I think the President made a mistake in not embracing the Fiscal Commission report. This doesn't mean that I think his embrace would have meant it would have passed. In fact, there is plenty of evidence that Republicans would oppose Obama on just about anything. However, there are several ways in which President Obama embracing the report would have helped politically, as well as in policy terms (maybe).

• The Fiscal Commission report assumes the implementation of the Affordable Care Act, and identifies next steps. Republicans have gotten away with only being clear on what they are against on health reform, and have not coalesced around a replacement plan. Embracing the Fiscal Commission plan could have made it harder for Republicans to get away with only being clear about what they are against.
• The tax reform approach offered in the report raises around $2 Trillion in taxes over 10 years. While this plan was noted as being too conservative when it first came out, it raises more in taxes than any other plan that has come out. It raised far more in taxes that the outlines of the 'near deal' between Speaker Boehner and the President.
• The goal posts have moved 'right' on almost every issue since the initial release of the plan. For example, the Fiscal Commission plan does not propose raising the Medicare age, but that was a part of the potential Boehner/Obama deal, and momentum for this idea has increased.

As the Calmes piece notes, the Fiscal Commission report has remained in the mix, and it is the yardstick to which most any proposal put forth is compared. I think there is a sense in which to eventual grand bargain is likely to look a great deal like the Fiscal Commission report, the question is whether such an agreement can be made short of some sort of economic calamity or not. My book tries to make the Progressive case for seeking such a deal sooner, rather than later.

Bigger tax reform deal easier than smaller?

Steve Bell makes the point that a corporate tax reform is best done alongside a reform of the individual income tax code as well. President Obama released a proposal for corporate tax reform yesterday that seems to have been viewed cautiously as a reasonable step in many quarters that signals interest in tax reform while acknowledging that a big step like that is doubtful before the 2012 election.

It adopts the proposed rate of 28% (down from 35%) suggested by the Fiscal Commission. It is instructive that focusing on the politically charged issues related to oil and gas companies and private jets can only reduce the rate so much. Going lower would require more fundamental changes in how corporations are able to deduct the expenses of doing business.

I have suggested ending the corporate income tax and simply treating dividends and capital gains as normal income, which would represent a large increase in the tax rate for these sources of income for high income persons. The logic of having a lower tax rate on capital gains and dividends is that corporations have already been taxed. However, if we were going to take a huge step like ending, or seriously lowering the corporate income tax, it would only make sense to do so along side an overhaul of the individual tax code to make sure ending/lowering the corporate tax rate doesn't simply drive more use of deductions, credits and exemptions in our current personal income tax code to shield corporate income (think: all the aspects of the current schedule C).

Regardless of what proposal you prefer on corporate tax reform, a key fact to keep in mind is that such taxes have only raised between 10-13% of total federal receipts (~2-3% of GDP) for the past 30 years. It has not been a huge source of federal revenue for some time, and I doubt it ever will be again.