In a speech yesterday Mr. Obama raised the issue of corporate taxes, part of his middle class camgaign . He has apparently abandoned any hope of addressing individual tax provisions if he ever had one. He suggested yesterday a revised corporate tax system could result in more money in the short term for the government. Plus, lo and behold, the money could be spent on union oriented infrastructure projects, job training, and new manufacturing “hubs”, which sounds like a horrible government centered concept.
In general, there was nothing new. More taxes, more government expansion. To pay for the new spending, there would be a one-time “transition fee” on the hundreds of billions of dollars international companies have deferred in taxes under current law by keeping earnings abroad. This is similar to the repatriation of foreign earnings enacted in 2005 which increased revenue but did not result in additional economic activity.
Tax reform is the topic de jure and rightly so. The need to make drastic changes in both corporate and individual system is not disputed by either political party.
There are many complications, however, which are and will most likely prevent any positive changes.
The first is the budget sequester. The automatic across-the-board spending reductions remain in place and can only be lifted or altered by Congressional action on the budget. The fiscal year ends Sept. 30, setting up a confrontation between the parties.
Another deadline probably in November is when the Treasury Department runs out of money to pay government obligations. Republicans are reluctant to vote to increase federal borrowing- the debt ceiling- without gaining something in return such as more spending cuts, lower taxes or budget provisions that impede the Affordable Care Act. The President has promised to stand firm, poised to blame the threat of any government shutdown on Republicans.
The next problem is even simpler than the first two. Democrats for the most part including the Senate Majority Leader Reid and the President want more taxes, higher taxes, any kind of tax to expand government. Senator Reid says the starting point is the almost $1 trillion contained in the Senate budget resolution. Senator Reid may think he is negotiating but I am not sure with whom? Tax reform is a very difficult proposition in an of itself but to think the Republicans will accept massive (if any) tax increases is an illusion, not going to happen in this Congress and not productive in getting tax reform underway.
Tax reform is only possible if it is relatively revenue neutral. It is not an excuse to raise more money. The goals and benefits of tax reform out weigh the greed of government to obtain more dough.
Another impediment to tax reform is the goring of the sacred cow or herds of cows. Which deduction, credit, exemption will be changed and how to muster the political support to enact such a change? The Senate Finance Committee has polled other Senators to find out what existing provisions should be preserved. This has been referred to the “blank slate” strategy. In other words, it is "out" unless justified to be "in" the current code. Some Senators responded, others did not, preferring not to be mouse trapped or penned in by the legislative maneuvering.
Which bring us back to Mr. Obama. He is facing many challenges. Keep the government going to meet its obligations, find some sort of path, any path to create economic growth. Old, tired suggestions and blaming the opposition for everything does not appear the right path to take. Indeed, the opposition conservatives are obstinate and not afraid of the political consequences of running contra to the Administration but the new mantra to save the “middle class” is nothing more than campaign rhetoric.