Deficit: The right way to talk about tax reform
President Obama has taken several opportunities over the past month to argue for tax increases as part of the effort to close the federal budget gap. On Monday, for example, as stock prices were plummeting in the wake of Standard & Poor's downgrade of U.S. debt, Obama called again for "tax reform that will ask those who can afford it to pay their fair share."
His stance lines up well with a new Gallup poll that, like numerous other surveys, shows that a solid majority of Americans like the idea of increasing the rates paid by their well-off countrymen. But that's all-pain, no-gain rhetoric, kind of like telling someone to eat their peas without promising dessert.
The Senate's top Republican, Minority Leader Mitch McConnell of Kentucky, seems to have a much better ear for this sort of thing. On Thursday McConnell named three reliably conservative members of his caucus -- John Kyl of Arizona, Rob Portman of Ohio and Pat Toomey of Pennsylvania -- to the joint select committee that will try to negotiate a bipartisan deal by Thanksgiving to cut at least $1.2 trillion in deficit spending. Although all three have signed Grover Norquist's pledge not to raise taxes (as have the three GOP appointees from the House), McConnell suggested that tax changes be part of the plan.
Getting the nation's fiscal house in order "means reforming entitlement programs that are the biggest drivers of our debt, and reforming the tax code in a way that makes us more competitive and leads to more American jobs," McConnell said in a statement.
As McConnell's remarks reflect, Obama and top lawmakers from both parties have similar ambitions for tax reform. Both would like to broaden the taxpaying base by trimming the loopholes, exemptions, deductions and credits that have proliferated in the code. Both say they would like to end up with a simpler system with lower rates, although some Democrats like the idea of creating higher brackets for the wealthiest Americans.
The main difference is in the stated goal. When Obama talks about reforming the tax code, he tends to do so in terms of fairness and wealth-redistribution. He lashes out at subsidies for the non-needy -- such as write-offs for corporate jets and for wildly profitable oil companies, or the preferential treatment given to hedge-fund managers' income -- and argues that the wealthy don't pay their "fair share."
When Republicans talk about reforming the tax code, they talk about inefficiencies and a lack of competitiveness. For example, they argue that corporate tax breaks need to be winnowed so Congress can lower the high marginal tax rates that make America seem unattractive to multinational businesses. Of course, eliminating those breaks will be costly to the businesses that benefit from them today. But the GOP doesn't harp on that point.
Granted, there remains a fundamental split between the two parties over how much, if any, of the revenue gained by eliminating tax breaks should be used to lower rates. There's also a wide gulf between Republicans' tax arithmetic, which can veer into fantasy, and Democrats'. Of course, the latter have their own hyperbole problems.
Anyway, I'm surprised Obama keeps trying to present tax reform as a means to punish disfavored groups, rather than a way to encourage investment and help the U.S. compete with the rest of the industrialized world. Either way there would be more revenue -- and more pain. But it would be better to present the pain as a byproduct than as a goal.
-- Jon Healey
Credit: Andrew Harrer / Bloomberg