Obama Flirts, Toys, Winks At - But Doesn't Back Real Tax Reform

Obama Flirts, Toys, Winks At - But Doesn't Back Real Tax Reform:

Greg Ip analyzes Obama's "framework" (pdf), which would cut the corporate tax rate to 28 percent and close certain loopholes:

Mr Obama’s proposal is better than what America already has, but not by much. His well-intentioned goal of broadening the tax base is betrayed by the preferences he insists on maintaining for manufacturing and “green” energy whose economic merits have been questioned, even by former members of his own administration. By maintaining many of the current tax breaks but apportioning them more variably, the tax code would become more complex rather than less so.

Scott A. Hodge criticizes Obama for adding new loopholes:

The plan creates a new 25 percent tax rate for manufacturing - perhaps, even a lower rate for "advanced" manufacturing. We can only imagine the feeding frenzy this would generate from lobbyists to get their industry declared manufacturing. As it is, the current "199" manufacturing deduction that was enacted in 2004, is available to architects, companies that grind hamburger, software firms, and companies that produce rap albums.

Annie Lowrey takes a closer look at the case for and against treating manufacturing differently. Len Burman wants a fuller plan:

You’d be hard-pressed to find any economists who are not industry lobbyists who think that the manufacturers’ deduction is a good idea. It should be abolished, not reformed. If there are flaws in the rules governing multinationals, fix them. We don’t need another minimum tax for multinationals. And instead of presenting a “framework,” present a proposal. The Administration should have a fully articulated plan that shows how the pieces fit together and the numbers add up. Clearly something like that exists behind the doors of Treasury. Let’s see it.

Ezra Klein likewise requests more specifics:

Both Romney and Obama’s plans rely on closing, capping or otherwise reforming various deductions and tax breaks. But neither plan is specific about which deductions and tax breaks would come under the knife, nor about what would be done to them. So the Tax Policy Center can’t fully assess either proposal. And that means we can’t, either.

John Tozzi points out that changing the corporate tax rate won't help many small businesses:

The lower rate would only apply to companies organized as C corps, which pay corporate income taxes. They make up less than 6 percent of business tax returns, according to IRS data. (They account for closer to two-thirds of all business revenue and income.) For the rest of the business world, including partnerships, sole proprietors, S corps, and limited liability companies, their business earnings flow through to owners’ personal income and are taxed at individual income tax rates.

Edward Alden wishes for bolder reforms:

What this proposal primarily does is to highlight the difficulty of trying to move discretely on any single aspect of tax reform. A tax system that is both more competitive and more fiscally responsible would require an array of changes. There are many ways reform could be sliced (which is why it’s so hard to do). My preference would be for significantly lower corporate tax rate to encourage investment, coupled with a Value Added Tax to raise revenue, discourage consumption, and boost exports, and a more progressive income tax system to offset the regressive VAT. Yet in the current political environment, two out of the three are deemed topics not worthy of serious debate.

And, after lowering expectations, Howard Gleckman manages some optimism:

In all, Obama’s plan is a modest but useful step in the direction of reform. We now have all the major presidential candidates on record supporting lower rates and a broader base. House Ways & Means Committee Dave Camp (R-MI) will have his own proposal very soon. By recent Washington standards, that is progress.

But what we need is a 1986-style Big Bang. I truly wish Obama would run on Bowles-Simpson. The only thing stopping him is the Democrats and his usual caution. I just think the oomph you need to get real change requires a populist movement that is as clear as it is simple. Otherwise, the lobbyists nibble you to shreds. Incrementalism won't work here.