I have to agree with Howard Gleckman of the Tax Policy Center on this one. And I’ve noticed this tension among politicians for a while. On the one hand they want to say that they favor a “simpler” tax code, and they like to talk about how many thousands of pages the tax code is and how byzantine it is to understand, etc. At the same time they boast about all the goodies they give out to this or that business or individual using the tax code, which of course only makes it more complex. Gleckman spells this out with respect to the State of the Union.
Here’s just a partial list of the targeted tax breaks Obama promoted: Tax credits for clean energy and college tuition, as well as tax cuts for small business that create jobs, domestic manufacturers, high-tech manufacturers, and companies that close overseas plants and move production back to the U.S.
At the same time, he’d require individuals making more than $1 million to pay an effective income tax rate of at least 30 percent, in part by eliminating their ability to take many deductions. And, he’d use the tax code to punish companies that do business overseas, creating a new minimum levy that is supposed to assure that all multinationals pay some U.S. tax.
Obama’s embrace of the tax code as a vehicle to pick winners and losers sounded more than a little discordant in a speech whose theme was “everyone gets a fair shot and plays by the same set of rules.” Not so much in a tax code where you get special rules for the government’s favored activities.
I don’t think the answer is merely lowering the tax rate on corporations and broadening the base by cutting out all the special deals, as Gleckman seems to believe. There needs to be a balance between a “simple” tax code and using it as a powerful lever to encourage things you, as a society, like and to discourage things you don’t like. There’s nothing inherently wrong with that. But you can’t have it both ways. You cannot support “tax reform” defined as a simpler tax code and then talk about all these tax credits and handouts.
In fact, that’s the danger of doing tax reform at all. Because the simplification will never stay that simple. Tax credits are the currency of politics these days. They will always get added on to the tax code. Politicians like it that way. It’s an easy way for them to advantage a particular group without “spending money” on a government program for them. Except these tax expenditures spend tons of money, more than the government spends on discretionary programs, actually. So I don’t see much of a way out here.
The best move, as I’ve been saying for years, is to do nothing at the end of the year, let all the Bush tax cuts expire, move forward with the Clinton-era tax code, and go from there with some other program of middle-class tax reductions to make the code more progressive if that’s your bent.