What Happened to Tax Reform, Mr. President?

What better time for reform than when a nation finds that the ship of state has run aground, when we are wracked by joblessness and foreclosures, when 69% of the public in a recent poll says the U.S. is in decline (only 15% thought not). Not much can be done to right the economy in the short term, and Congress is seeing to it that not even that is done, so why not at least get to work laying the groundwork for a healthier future while waiting hopefully for the economy to recuperate.

There is much to reform, but the tax system, which underpins so much else, is where to start. In all three state of the union addresses President Obama has spoken of tax reforms to some degree, and most forcibly in the most recent address. Along with a rising chorus on both sides of the aisle in Congress, he has come to agree that the corporate tax rate, at 35% the highest in the world, drives businesses offshore and jobs along with them.

”So tonight, I'm asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years — without adding to our deficit. It can be done.”

About individual taxes he said,

“The best thing we could do on taxes for all Americans is to simplify the individual tax code”.

That was January. It’s nearing year-end.

Instead of doing anything that fits his job description, Mr. Obama is instead touring the country campaigning to raise money over a year before the election. His vice-president isn’t on the job either. On MSNBC’s “Morning Joe”, Biden said his main job for the next year was to do everything he could to assist Obama to get reelected.

strike while the economy is cold

The right moment is at hand for the tax reform for which presidents and politicians have called for since forever ago. But nothing happens. Just more talk.

Republicans in Congress have shown that they will block anything proposed by Obama in order to make him a failed president and are unperturbed that their roadblock to progress — with all movement stalled for yet another year —: has won them the approval rating of bedbugs, as the Times’Bill Keller put it.

If Obama would like to linger in the Oval Office, sending popular proposals to Congress to be struck down is actually a strategy for reelection. Presidents and their advisers, in the cocoon of DC, have a strange belief that such setbacks are embarrassments — proof of weakness in the public’s eye. Instead, the President could take these “defeats” out on the campaign trail to show that Republicans in Congress are the enemy of the people, and he would at the same time be giving an assist to Congressional candidates from his own party who are striving to replace the enemy.

As for Republicans in Congress, it’s a wonder they have not advanced bills on their own so as to claim all credit for fixing what is broken. They express a strong wish to reduce the corporate tax rate in return for eliminating loopholes, yet nothing moves forward. Of course, so few large corporations pay anything close to the 35% rate, that we are left to wonder whether Congress is hearing from these campaign donors that they like things just as they are.

So only the Republican presidential candidates have put tax specifics on the table — schemes such as Herman Cain’s peculiar 9-9-9 plan and now, from Rick Perry, after coaching by twice-failed presidential candidate Steve Forbes, a proposed flat tax of 20% (as part of a wider plan). Into the trash would go the elephantine tax code — 72,000 pages says Perry, with your tax return reduced to the postcard he pulls from his pocket.

The promise of simplification has always been the lure that flat tax crusaders use to seduce a public which was driven years ago to use tax software, a tax service, or an accountant to avoid the tax code’s thickets of complexity. It’s been so long since people have been near the 179-page (and that’s without forms) 1040 instruction booklet that they are unaware that the tax rate schedule is simple —just a few lines long, only one of which pertains to you. It has no need of flattening. It’s the page after page of worksheets in the instructions, with their inscrutable step-by-step calculations, their barnacles of special exemptions, exceptions and dependencies on other calculations that are the cause of the complexity. (And don’t blame the IRS. These tangles are the mare’s nest handed to the revenooers by the folks we sent to Congress, who tacked some amendment to a bill to reward to some constituent group and left it to the hapless IRS to figure out how to express the math.)

So beware the flat tax masquerading as the remedy for complexity. It is yet another ruse to rig the game still further by reducing taxes for the wealthy. Cain's 9% plus 9% taxes on individuals would raise taxes on anyone with income less than about $140,000. For either Cain or Perry, anyone above that line would pay less taxes, measured against current rates. Perry's plan allows anyone making $500,000 to keep their current tax rate. Is that meant to make it appear that the 20% rate applies to only a few at the top? In fact, current tax rates are higher than 20% for anyone making only $144,000 and above. Millions would pay less. Someone with taxable income of $1 million would save $120,000. Above that the savings really soar.

Instead of fully considered reform, we get the regressive gimmickry of a flat tax giveaway to the wealthiest among us who already control a wildly disproportionate share of the nation's wealth. There is no question that the country must raise more revenue or go ever deeper into debt. If you think over-spending is the sole cause of the deficit, be aware that the sum of all the revenue collected by the federal government today totals just 14.8% of our gross domestic product, the lowest in about 50 years. And yet Perry announces a plan to cap taxes at 20% while in that same announcement says "America is under a crushing burden of debt". Right. Let's make it worse.

When are we going to get serious?