Romney's tax plan is much closer to Simpson-Bowles than Obama's
E. Thomas McClanahanIn a way, it’s surprising that Simpson-Bowles remains a touchstone of tax reform. But it won’t go away. President Obama gave it a mention in his recent speech in Charlotte, suggesting he was still willing to press ahead on its proposals.
I doubt it. That’s because the plan would lower tax rates for top earners, which Obama seems to resist with every nerve. While those rates would drop, the tax code would also be cleansed of many of the deductions, credits and exclusions that have made our tax code a nightmare.
There’s broad agreement that the tax code is a mess. It’s dragging down the country and the economy. We have, for example, the highest corporate tax rate in the world.
Obama appointed the National Commission on Fiscal Responsibility and Refom in late 2010. It was chaired by Alan Simpson, a Republican, and Erskine Bowles, a Democrat. Many expected its work to cause few ripples in Washington, like the work of so many other blue-ribbon commissions.
But the reality proved otherwise because in broad outline, it adopted the familiar equation for broad tax reform: lower the rates, and broaden the base — the same formula used for the historic reform in 1986, which brought the top rate down to 28 percent.
To achieve formal consensus, 14 of the panel’s 18 members had to approve the final report, but it only drew 11 votes — still a solid majority. Among those voting “aye” were figures on opposite sides of the political spectrum, notably Sens. Tom Coburn, a Republican fiscal hawk, and Dick Durbin, a liberal Democrat. Coburn accepted the reform concept even though it would not have been revenue neutral: It would have raised more money than the current tax system.
This broad agreement proved the idea of tax reform had legs. Here was a golden opportunity for Obama to pick up the baton and push for a major first-term accomplishment. Instead he ignored the report and coughed up a budget that couldn’t win a single vote in the Democratically controlled Senate.
The fact that Simpson-Bowles is still being discussed shows that this tantalizing opportunity is still out there. The plan was far from perfect: Its would have accepted Obamacare, it would have permitted no serious reform of Medicare and Medicaid, and it would have significantly raised rates capital gains and dividend income. That’s why Paul Ryan, now the GOP vice presidential nominee, voted against it.
Obama may have given a salute to Simpson-Bowles in his Charlotte speech, but as the Tax Foundation noted in a report last week, Mitt Romney’s tax plan is much closer to the Simpson-Bowles concept of lower rates, broader base than Obama’s plan.
From the Tax Foundation report:
“Obama’s tax plan is largely at odds with any commonly held notion of tax reform, including Simpson-Bowles. It would result in dramatically higher tax rates, on the order of 50 to 90 percent higher than the Simpson-Bowles tax rates on personal income and investment income. Tax rates on investment income would return to levels not seen since the early 1980s, i.e., prior to the 1986 tax reform on which Simpson-Bowles was modeled. The half of the population that pays income taxes will not swallow the medicine of tax reform without the sugar of lower tax rates, and President Obama has foreclosed on this option. While the president has voiced support for eliminating tax expenditures, his specific proposals tend to add more than are taken away, although he has proposed limiting them for high-income earners. Not only does this fail to simplify the tax code, it fails to spur the economy, ultimately resulting in insufficient tax revenue and perpetual deficits.
“In contrast, Romney’s tax plan takes concrete steps in the direction of Simpson-Bowles, while not excessively taxing saving and investment. It lowers the top rate on personal income to match that of Simpson-Bowles and promises to reduce tax expenditures, although it appears Romney is not willing to expose the middle class, and perhaps other groups, to a full scrubbing of the tax code. It will take more specificity, leadership, and compromise to eliminate long-standing preferences like the mortgage interest deduction, but Romney is on the right track in lowering tax rates. On investment income, the plan maintains current tax rates for high-income earners but eliminates taxes for everyone else. The plan also follows the Simpson-Bowles advice to lower the corporate rate and move to a territorial system. Overall, Romney’s tax plan makes important reforms that are likely to lead to lower deficits, an eventual balanced budget, and more economic growth.”
Mark Hastert
8 months, 1 week agoAhhhh, Errrrr… I don’t see any mention of the S&B recommendation to tax capital gains as ordinary income. I’d be perfectly happy to lower the top rate to 27% if they tax capital gains that way too. That’s a very important distinction they left out.
BTW Google the Tax Foundation, they’re not a credible non-partisan source. But I bet E. Thomas knows that.
Ryan Nieuwendaal
8 months, 1 week agoWrite an opinion piece titled “Romney’s tax plan is much closer to Simpson-Bowles than Obama’s” with the Tax Foundation** as the only source. Well, I’m sold. That was some incredible investigative reporting. It’s because of pieces like this that readers will be assured that the media is trustworthy.
**We acknowledge that the Tax Foundation is not a non-partisan source of information.