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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, September 13, 2012

Barone: Obama is the Odd Man Out on 1986-Style Tax Reform

Washington Examiner op-ed: Obama Could be the Odd Man Out on Tax Reform, by Michael Barone:

One of the services of the Simpson-Bowles Commission was to set out a path for tax reform, with lower income tax rates and removal of many tax preferences or, to use the commission's term, tax expenditures.

It's an approach that has been tried before and worked. Ronald Reagan called for such a reform in 1984 and, after much negotiating, it was hammered out in 1986. Lead roles were played by Treasury Secretary James Baker; the Democratic chairman of the House Ways and Means Committee, Dan Rostenkowski; and the Republican chairman of the Senate Finance Committee, Bob Packwood. ...

Mitt Romney has endorsed a similar procedure. So has Paul Ryan, who included it in the budget he steered to passage in the House.

Romney and Ryan have been criticized for not providing specifics on which tax preferences they would eliminate. But neither did the Simpson-Bowles Commission, which said that "the precise details and exact transition rules should be worked out in a variety of ways by the relevant congressional committees and the Treasury Department." That's how it worked in 1984-'86. ...

The biggest obstacle to 1986-style tax reform is Barack Obama. In his acceptance speech, he reiterated his call for higher tax rates on high earners.

That's as much of a deal killer for Republicans as his late-in-the-day insistence on $400 billion in additional revenues in the August 2011 grand bargain negotiations, documented once again in Bob Woodward's "The Price of Politics." ... Woodward reports that during the grand bargain negotiations, congressional leaders of both parties voted Obama "off the island." Voters who want Simpson-Bowles-type tax reform can do that in November.

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Will a 1986-style tax reform be followed by a 1993-style huge increase in tax rates? As long as that bait and switch remains a strong possibility there will be little appetite for base-broadening tax reform.

Better would be to reform spending programs, calculate the revenue required to close the remaining gap, and enact base broadening sufficient to generate that revenue. A deal that fully closes the fiscal gap might be sustainable. The 1986 deal was not.

Posted by: AMTbuff | Sep 13, 2012 11:26:15 AM

It is a consensus across the political aisle that the best way to raise revenue is by expanding the tax base. Low rates and tax everything is the best way to go. We are running a $1.3 trillion deficit, and even with spending cuts we are going to need $1 trillion a year. Now you stick your head in the sand, and not think about the unthinkable if you want, but a serious man needs to think about best way.

Posted by: Calvin H. Johnson | Sep 13, 2012 3:17:20 PM