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Yet another tax reform panel

March 26, 2009

President Obama has launched another tax reform panel. It seems like only yesterday that President Bush's Presidential Advisory Panel on Federal Tax Reform launched its final report into instant oblivion. Any hopes that the new panel will have more success were dashed by the the conditions imposed on the panel:

“The only constraints on its activities are that there will be no tax increases during 2009 or 2010, and the proposals should not raise taxes on American families making less than $250,000,” said Peter R. Orszag , director of the Office of Management and Budget (OMB).

Unless they can interpret this very creatively, they are pretty much out of luck to start. There is a severe need to reform the vast array of crummy tax breaks, from hybrid car credits to the umpteed educational credits and deductions. You can't clean this stuff up without hurting somebody under $250,000 without making an already top-heavy tax system more unbalanced and dependent on the income of the top 5 percent of earners.

TaxVox points out how other Obama policies are making tax reform more difficult:

The first is that he keeps extending targeted business incentives, such as the research credit. Eliminating these tax breaks makes good sense. But Obama is not only not eliminating old loopholes, he’s even created a few new ones.
The second is that he’s on the road to creating a troublesome spread between corporate and individual rates. In his budget, Obama would raise the top individual rate to nearly 40 percent. The president has never said how low he’d cut the corporate rate, but in 2007 House Ways & Means Committee Chairman Charles Rangel (D-N.Y.) proposed taking it down to about 30 percent.

The panel will have some smart people on it, but unless they strike out in a different direction than they've been directed to take, it's hard to imagine much coming of it. They sure won't come up with this: