The New Obamanomics?

Interesting and encouraging suggestions in the news today that President Obama wants to embark on significant tax reforms largely along the lines recommended by the Commission on Fiscal Responsibility and Reform. As noted in today’s NYT:

President Obama is considering whether to push early next year for an overhaul of the income tax code to lower rates and raise revenues in what would be his first major effort to begin addressing the long-term growth of the national debt.

The piece continues:

The objective is to rid the code of its complex buildup of deductions, credits and exemptions, thereby broadening the base of taxes collected and allowing for lower rates — much like a bipartisan majority on Mr. Obama’s debt-reduction commission recommended last week in its final blueprint for reducing the debt through 2020.

Doing so would offer not only an opportunity to begin confronting the growth in the national debt but also a way to address warnings by American business that corporate tax rates and the costs of complying with the tax code are cutting into their global competitiveness.

This marks an interesting turn of events, one that will likely cause much disquiet for the Left while bringing a smile to the face of Arthur Laffer. Obviously, it is far too early to make predictions on whether such reforms are likely to be initiated. Undoubtedly, the politics will be quite complicated (recall the events surrounding the Tax Reform Act of 1986, which combined simplification of the tax code with a reduction of rates). For those interested in how this was accomplished a quarter century ago, the best account remains Alan Murray and Jeffrey Birnbaum, Showdown at Gucci Gulch.

 

 

11 thoughts on “The New Obamanomics?

  1. I think it is possibly good news in terms of debt reduction. But it is still, fundamentally, the wrong approach. We shouldn’t be taxing income or profits at all; we should tax consumption.

    The best long term strategy for growth is to eliminate taxes on productive activities. In the long run, the main issue is productivity growth, not debt. And if you want more of something, you lower its price.

    A transition to consumption taxes would provide incentives for long-term investment, for R&D, for moving resources to their most valuable uses. And it would make US businesses hyper-competitive in the global marketplace.

    [Of course I would also add that consumption taxes should also be low–used to finance a small, limited government.]

  2. Actually, if this is seen as the closing of loopholes with the raising of overall revenue, I can imagine quite a few people on the left going for it.

    Sven, how do you deal with the argument that consumption taxes are regressive?

  3. I would like Sven to comment on Bill’s question too. At the risk of appearing a simpleton it would seem to me that a consumption tax would be the most democratic of taxes. Couldn’t you control the amount of taxes you paid by controlling your purchases? And wouldn’t the rich, big spenders automatically be paying more in taxes?

    Everyone who flies on a commercial airliner is paying fuel taxes as part of the cost of their tickets. How much more does some bigwig who flies in his private jet pay in just that one tax than the average joe? Same for the multimillion dollar house verses my little $200,000 house. Same for cars, clothes, and every other purchase I can think of. As a concession, food would not be taxed.

    So go ahead and point out why I’m wrong. I can take it.

  4. The argument about consumption taxes being regressive, Rick, at least in the form I’ve always heard it, is not that the rich don’t consume more, but that a smaller portion of their income is paid for consumption. Therefore the poor end up paying a larger portion of their overall income, even if less in absolute terms (pretty much any taxation system is going to end with the poor paying less in absolute terms, as they don’t have as much). Exempting food is one way around this, but I don’t know how effective it is.

  5. The argument about the regressive nature of consumption taxes, Rick, at least in the form I’ve always heard it, is not that the rich don’t consume more, but that a smaller portion of their income is paid for consumption. Therefore the poor end up paying a larger portion of their overall income, even if less in absolute terms (pretty much any taxation system is going to end with the poor paying less in absolute terms, as they don’t have as much). Exempting food is one way around this, but I don’t know how effective it is.

  6. I had to rephrase that comment, btw, in order to get it to post. The system kept telling me it was a duplicate comment.

  7. Thanks for getting back Bill.

    It seems to me the more important point is that the individual/family gets to set their own tax limit. I can choose almost exactly how much tax I’ll have to pay by taking control over what and how much I consume, particularly on nonessentials – 52″ plasma v. 36″.

    My wife and I, as an example, have had years where our tax burden would have been only a small percentage of what we end up paying consistently via income tax. Our savings, if this was the case, would be a larger percentage of our income than that enjoyed by more prolific spenders – the “rich”. I should also add that our combined income is about half that of the $250,000 threshold for being “rich” so I’m not coming at this from the point of view of protecting my own.

    And when I think of the bonus of doing away with IRS it seems all good. I just happen to agree with Gunnar Myrdal, the Swedish socialist leaning economist, that an income tax is immoral.

  8. Yes, but the lower your income the greater proportion of it goes to consumables and the fewer choices you have. If I’m a single income parent with five kids, lowering my tax bill by belt-tightening may not be an option.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s