Obama’s tax-reform panel: a giant missed opportunity

The tax-reform panel provides useful budget-cutting hints, but Obama never allowed it to tackle the really big issues.

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.

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