Obama’s Tax Reform Panel: A Missed Opportunity

By :: August 27th, 2010

You buy what you think will be a state-of-the-art GPS device to give you driving directions. The gizmo was designed by a committee of the nation’s smartest highway engineers. But instead of telling you to turn right now, the e-voice says something like this: “You could turn right now. It would be better than going straight, which is a really bad choice but, on the other hand, the road might be a little bumpier and besides, you could also get where you want to go by turning left three blocks from here. So I’m not actually recommending what to do.”

That’s the feeling I got reading the long-delayed Report on Tax Reform Options from the President’s Economic Recovery Advisory Board (PERAB in Washington-ese). The paper, approved by the panel this afternoon, is filled with lots of useful information about our flawed tax system but leads nowhere. There are no recommendations. No revenue estimates. And no ownership by President Obama, even though he picked the panel’s members and staffed it with White House aides.

As a result, this report is a huge missed opportunity. 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.

Imagine if Obama used this group to start the process of doing what President Reagan did, develop a broad-based reform plan. Or even if he had allowed the panel to design full-blown alternative tax structures—a step George W. Bush took in 2005 (although, it must be noted that Bush ultimately ignored the suggestions of his own commission).

This panel might have had some clout. Former Fed chairman Paul Volcker headed the group, which included economic heavyweights such as Marty Feldstein and Laura Tyson, as well as business executives such as John Doerr and Jeff Immelt. But Obama hamstrung them from the beginning by prohibiting the committee from considering any changes that would raise taxes on those making less than $250,000-a-year. He also limited its charge to simplification, compliance, and corporate taxes—the first two, at least, relatively low-hanging fruit.

There is nothing wrong with the report’s focus: These are important issues, though obviously not the whole story. But per White House instructions, the committee makes no recommendations at all, instead merely describing general options for change and outlining both the benefits and disadvantages to each.

As if that was not enough, the report comes with not one but two disclaimers:

First: “It is important to emphasize at the outset that the PERAB is an outside advisory panel and is not part of the Obama Administration. Our report is meant to provide helpful advice to the Administration as it considers options for tax reform in the future.”

And if you didn’t get it, there is also this: “The report does not represent Administration policy.” 

Thus, the study was thrown under the bus.

While there is almost nothing in this paper that has not been hashed over by prior studies, including the Bush commission, the PERAB report does a nice job describing what is wrong with the current tax code. And it includes some valuable hints, at least, about possible future policy choices. But, in the end, it does little to advance a debate the nation desperately needs to have.  



  1. Anonymous  ::  1:32 am on August 28th, 2010:

    I am more interested in looking at the comments provided to the PERAB, which are also due to be released.
    Thanks for tracking this. I agree it was a missed opportunity, but that was expected with Dr. Feldstein on the panel, who would not go for more aggressive and needed taxes. I have a feeling that Larry Summers also probably had a bit of influence in keeping it vanilla.
    The Fiscal Commission's establishment gave them every reason to punt, so punt they did. Hopefully the FC will have some more breathing room – although I don't expect it given its overly bipartisan nature.
    The Commission should have had less Republicans on it. It needs just enough to get to 60 votes – assuming that the needed reforms can't be engineered through the Senate in Reconciliation. If that were a possiblility I question whether bipartisanship is necessary at all, if that would only lead to obstruction.

  2. Anonymous  ::  6:30 pm on August 28th, 2010:

    very interest post i think that Obama is a gooda way.

  3. Anonymous  ::  4:37 pm on August 30th, 2010:

    The issue is that there will be no reform until the Medicare, Medicaid and Social Security is brought into the equation. There can be no consensus since the Democrats only want tax hikes and no cuts whatsoever in the entitlement systems. The Republicans don't want any tax hikes and only whats to cut the benefit systems.
    Consensus can be reached on tax hikes and benefit cuts to stabilize Medicare, Medicaid and Social Security.
    At this time and place it would be political suicide for Republicans to do a tax reform including tax hikes. They can play a waiting game and when the Progressive overreaching Democrats, Reid, Pelosi et al are substantially weakened after the November elections. President Obama can restart the subject of tax and welfare reform. Maybe we can get back to Bill Clinton after he had been snubbed by the Americana people. He became the greatest reformer of the welfare system ever and a true believer in fiscal resistant and fiscal sanity. The best of both worlds a fiscally conservative congress and a Democrat centrist president.

  4. Anonymous  ::  4:42 pm on August 30th, 2010:

    We should reverse the Bush tax cuts (and the 1997 Clinton tax cuts). They cut taxes on wealthy investors, which has distorted the market, encouraged over-investment, leading to the past two investment bubbles, and so our last two recessions. Prior to that, President Clinton increased taxes on the wealthy. Republicans said it would ruin the economy. Instead we had the biggest economic boon in history and balanced our federal budget. See argument next to Clinton's photo at https://fairsharetaxes.org/Talkingpoints.aspx
    However that is only a start. We need radical tax reform: Reduce but reform income taxes, eliminating nearly all deductions, eliminate regressive sales, property and social security taxes, eliminate capital gains taxes, eliminate estate taxes and ADD A WEALTH TAX of 1-2% on net worths over about $500,000.
    The wealth tax would amount to a 20% tax on investment returns, making it on par with taxes on work income. Right now work is taxed at 5-10-fold rates greater than investment returns. For the very very rich (Warren Buffett 2006) investment return are taxed at rates 200-fold less than wages from work.
    Giving wealthy investors tax advantages over working wage earners is not necessary for a strong economy. In the last 30 years the top marginal rates have been 35-39% and the economy grew at an average GDP growth of 2.7%. For the 30 years prior the top marginal rates were 50-92% and the economy had 30% stronger growth at 3.6%. Unemployment averages were the same for the 2 periods.
    A Wealth Tax would:
    1 -make taxes more proportional to ability to pay
    2- make taxes proportion to the extent a household has profited from economic infrastructure provided by governments
    3- reverse tax advantages that have resulted in the top 1% owning 40% of the nation's wealth up from 22% before Regan started giving the wealthy tax breaks [basic economic fairness and less inequality are associated with reduction of numerous social ills (http://www.equalitytrust.org.uk/why)]
    4- reduce recessions caused by bubbles caused by excessive investment caused by favored tax treatment of investment and wealth condensation
    5- strengthen the economy
    6- create a rising tide that raises all boats
    7- greatly simplify the tax system if coupled with the other reforms proposed
    8- bring US tax revenue more in line with that of all other developed economies and so substantially cut the national debt
    See more at http://fairsharetaxes.org

  5. Anonymous  ::  2:07 am on August 31st, 2010:

    The Republicans are committing suicide by nominating and electing extremists sponsored by the Tea Party Express, mostly to kill the Tea Party as a separate force. This could backfire on them. The Republicans have no credibility precisely because they are so reflexively anti-tax.

  6. Anonymous  ::  2:12 am on August 31st, 2010:

    Mostly agree, although I would hate to be on the hook for wealth taxes from 2007 when 2008 drop hit. This is why we tax liquidity rather than wealth.

  7. Anonymous  ::  2:14 am on August 31st, 2010:

    I notice that eliminating ESOPs is one of the options mentioned. This provides an opening for further analysis as to the history of ESOPs and whether they have met their potential for democratizing capital.

  8. Anonymous  ::  2:16 am on August 31st, 2010:

    Volumerates is a very good wholesale site,it's cheap and fine.

  9. Anonymous  ::  11:46 am on September 2nd, 2010:

    And it includes some valuable hints, at least, about possible future policy choices. But, in the end, it does little to advance a debate the nation desperately needs to have.

  10. Anonymous  ::  12:37 am on September 15th, 2010:

    Everything about Obama is fizzling out. But…. he is a great teleprompter reader. Still give him that much! The sad thing in 20-20 hindsight is that the best we could offer in response was McCain and Palin. God, that is a pathetic commentary on American politics.exchange rates

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