by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Jim McTague of Barron’s devotes his latest “D.C. Current” column to the prospects for federal tax reform over the next two years.
The Republicans also promise to produce a tax-reform bill for the president to sign. There’s every reason to believe this will be so. There’s bipartisan support in both the House and the Senate for junking the current tax code and replacing it with one that is simpler and that makes the U.S. more competitive internationally. The business community has convinced both parties that the current system is hobbling the recovery. Give them a break and they will spend, they claim.
Getting the president to sign a Republican-endorsed bill—well, that’s a whole other story. Obama has strong preferences regarding the shape of tax reform—and he shows no sign of abandoning them merely because Republicans now have the run of Capitol Hill. Ideologues like Obama don’t like to compromise. The president revealed his distaste for compromises at his post-election news conference Wednesday.
“THERE ARE GOING TO be some ideas that I’ve got that I think the evidence backs up would be good for the economy, and Republicans disagree. They’re not going to support those ideas. But I’m going to keep on arguing for them because I think they’re the right thing for the country to do. There are going to be some ideas that they’ve got that they believe will improve the economy or create jobs that, from my perspective, aren’t going to help middle-class families improve their economic situation, so I probably won’t support theirs, ” he said. In short, Obama indicated that he’s not prepared to budge from the stances he’s taken since day one in office.
Because of his take-it-or-leave-it style, the logjam between the House and the Senate could be replaced by a logjam between Congress and the Oval Office. Obama has a drawer full of veto pens and he’s indicated that he’s not afraid to wield them. Accordingly, “there’s a great deal of uncertainty about the fate of taxes,” says Douglas Holtz-Eakin, a former director of the Congressional Budget Office and currently president of the American Action Forum, a center-right policy institution. …
… In the president’s mind, his tax framework should appeal to Republicans because it lowers rates and generates money for infrastructure improvement. Economists left and right—including Ben Bernanke when he was Federal Reserve chairman—have suggested infrastructure investment to strengthen the pace of the recovery. However, the president’s penchant for disparate tax treatment of different industries flies in the face of fairness and sound economic policy. Every business should be equal under the law. Free-market economists argue that you shouldn’t have one tax rate for the shoe maker and another for the shoe store. Republicans pretty much rejected Obama’s outline when it appeared for this reason and also because it provides no relief for small businesses, which tend to pay taxes at the individual tax rate.