Monday, January 03, 2011

Tax Reform Won’t Happen in 2011 (or 2012)

Expecting major revisions to the tax code in 2011, or 2012? Well don't hold your breath. According to Howard Gleckman from, tax reform isn't likely to happen any time soon.

Here are his main reasons:

    Obama isn’t on board. The President could have used the tax reform plans offered by his own fiscal commission or the Bipartisan Policy Center as an opportunity to jumpstart the debate. But he was decidedly cool, calling only for a national conversation on taxes. As Ronald Reagan showed with the 1986 Tax Reform Act, a major rewrite of the revenue code requires a full-court press by the White House. To get a bill moving, Obama would have to send a complete reform plan to Congress and keep up the pressure for passage. There is no sign he’s ready to do that.

    Hill Republicans are not on board. Incoming Ways & Means Committee Chairman Dave Camp (R-MI) says tax reform will be one of his priorities, and that’s a good thing. But speaker-to-be John Boehner (R-OH) has little interest in supporting real reform. In the Senate, Democrat Ron Wyden (D-OR) still has his rewrite, but his GOP cosponsor, Judd Gregg, has retired and Republicans are not exactly lining up to take his place. Republicans would surely back further rate reductions, but they have no interest in cutting tax subsidies—the hard part of reform. It is easy enough for a pol to embrace the concept of repealing loopholes. It isn’t so easy to actually cut the mortgage interest deduction. And does anyone seriously think the GOP would give Obama an historic victory on tax reform on the eve of a presidential election campaign?

    Hill Democrats are not on board either. After their battering in this year’s elections, Democrats want only one thing between now and November, 2012—a plummeting unemployment rate. And they don’t see how a nasty protracted debate over tax reform will create many jobs. Besides, these days Dems are just as enamored of targeted tax subsidies as Republicans.

    There is no agreement on how much money the new tax code should raise. The ’86 Act passed, in part, because it produced the same amount of money as the tax code it replaced. But in the face of a $1 trillion-plus deficit and growing fiscal pressures down the road, the next reform would have to raise more revenues. Democrats, of course, will be fine with that. But the idea was red meat for Republicans even before the 2010 elections. The growing clout of the anti-tax activists who make up much of the tea party movement will make it even tougher for GOP lawmakers to budge on new revenues.

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