Tax Policy is MIA in the State of the Union
By Howard Gleckman :: January 29th, 2014
When it comes to tax policy, President Obama’s State of the Union address last night was a model of modesty. There was little new. And, while it is always hard to tell what really matters in a speech that included more than 40 separate initiatives, the president showed little enthusiasm for broad-based tax reform.
With the exception of his continued interest in immigration, the speech was almost Clintonesque in its collection of small-bore, feel-your-pain initiatives. That was certainly true when it came to taxes.
The one exception: A potentially important initiative to expand the Earned Income Tax Credit to low-wage workers who do not have children. Currently, while some childless adults are eligible for a modest credit of up to $500, the nation’s biggest tax-based income support program largely benefits only households with kids. My Tax Policy Center colleague Elaine Maag has written extensively about this idea. Yesterday, she blogged about a similar idea offered by Sen. Marco Rubio (R-FL).
The president perfunctorily restated his support for business tax reform but added no new twist to make his plan any more acceptable to congressional Republicans. His idea: Eliminate tax “loopholes” and use the money to cut rates and—briefly—finance some new infrastructure spending.
Obama’s language was not helpful if he’s serious about his plan. As long as he continues to pretend that substantial business rate cuts (or infrastructure spending, for that matter) can be funded by eliminating “loopholes,” the president is doing little to advance the reform debate.
As he, and his GOP adversaries, well know—but won’t say—significant business rate cuts are impossible without fundamentally restructuring the bedrock credits, deductions, and other subsidies that are at the heart of the tax code.
Firms have built their business models to take advantage of these preferences. Significantly reducing rates requires changing the way companies manage their capital investment, inventories, foreign income, and debt financing. It is not helpful for the president to continue to describe them as “loopholes” as if they are nothing more than hyper-technical, unanticipated cracks in the Revenue Code.
What other changes in the tax code did Obama propose?
There are a couple of new ways to restructure retirement savings. Obama will create a new myRA (shorthand for my retirement account) to encourage working people to begin savings through Roth-type Individual Retirement Accounts. In a fact sheet accompanying the speech, the White house said Obama would also propose reducing tax benefits for retirement accounts for high-income households.
The president will also propose a new tax credit for alternative energy biofuels--a bit of what my Tax Policy Center colleague Gene Steuerle likes to call tax “deform.”
Finally, the president’s speech was notable for what it did not say. Reducing the budget deficit and reforming entitlement spending for programs such as Medicare, Medicaid, and Social Security seem to have fallen off his radar screen.
In sum, the speech plowed little new ground. Big changes in tax policy, it seems, will wait until after the 2014 elections and, quite likely, until the White House has a new occupant in 2017.