Tax Reform Report A Letdown For Actual Reform

Tax Reform Report A Letdown For Actual Reform


By BRIAN WINGFIELD

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Q: What do former Federal Reserve Chairman Paul Volcker, AFL-CIO boss Richard Trumka, General Electric CEO Jeffrey Immelt and billionaire Penny Pritzker have in common?

A: They’re all part of an exhaustive effort to examine the problems with the U.S. tax code–an effort that is likely to be ignored by Congress, at least in the near term.

These folks and other notables (including Harvard economist Martin Feldstein, venture capitalist John Doerr, TIAA-CREF chief executive Roger Ferguson and UBS Americas Group CEO Robert Wolf) are members of the President’s Economic Recovery Advisory Board, a panel that that President Obama set up in the earliest days of his administration. On Friday, the group released its long-awaited report on tax reform options.

Now we know why there was little fanfare surrounding the release, which occurred on a sleepy August afternoon while Congress is in recess and Obama was away on vacation. The problem with the 130-page report, as Tax Policy Center research associate Howard Gleckman points out, is that it includes no recommendations about how to reform America’s increasingly Byzantine tax code. “[T]his report is a huge missed opportunity,” writes Gleckman. “Obama might have used this exercise to jump-start a debate over fundamental tax reform. Instead, the report does nothing to fill the policy vacuum that is being filled by an argument over what to do about the decade-old Bush tax cuts.”

So what does the report actually say? It discusses the advantages and disadvantages of an array of policy options, like eliminating the alternative minimum tax, lowering the corporate tax rate, modifying capital gains taxation and eliminating tax expenditures. It’s useful as a primer for anyone wanting to know more about the complexities of the U.S. tax code and probably should be required reading for anyone with a hand in creating legislation to overhaul the tax system, whenever that may be.

But it’s not likely to be anytime soon. With the economy still slumping and elections looming, look for lawmakers to take a pass on making tough tax decisions, such as whether to let the Bush-era tax cuts expire as scheduled at the end of the year.

“We think that an extension of the Bush tax cuts for all income levels is growing more likely by the day,” says Brian Gardner, a financial analyst with Keefe, Bruyette & Woods, in a research note out Monday. “The biggest remaining question in our mind is whether the extension of the tax cuts is two years or one year (more likely).”