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Politics aside, what's needed is long-term tax reform

Jul 18, 2012 By The Milwaukee Journal Sentinel

There's not a snowball's chance on a hot July day that Congress is going anywhere near President Barack Obama's proposal to allow the Bush era tax cuts to expire on high income earners before the presidential election. So, in that sense, Obama's proposal is little more than empty politics.

But if he's interested in eventually winning this debate, Obama was smart to put it on the agenda now.

Obama is urging Congress to extend the tax cuts for another year on families making less than $250,000 a year; he'd allow the rates to rise for higher income earners. Obama is right when he notes that 98 percent of American taxpayers wouldn't be asked to fork over another dime.

If Congress doesn't act, the top tax rate for ordinary income would increase to 39.6 percent from 35 percent. The top tax rate on capital gains would increase to 23.8 percent from 15 percent, and dividends would be taxed as income.

But if they were interested in tax fairness and fiscal sensibility, Obama and Congress would do more than simply extend or rescind the Bush tax cuts. They would launch a broader reform of the tax code with an eye to establishing lower rates for businesses and individuals but eliminating deductions that clog up the code and make it Byzantine to navigate.

Obama's own fiscal commission, headed by former Republican Sen. Alan Simpson and former Clinton administration aide Erskine Bowles, suggested such a plan.

Despite the challenges of doing anything constructive between now and November, Obama and Congress would be wise to begin. As a result of last summer's deal to increase the federal debt ceiling, a series of mandatory spending cuts is scheduled to take effect at the end of the year. Combined with the expiration of the Bush tax cuts and expiring cuts to the payroll tax, economists warn that the shock to the economy could send the nation back into recession.

In time, much more will need to be done to tackle a stubborn deficit that both parties are responsible for running up. If, as appears likely, lawmakers wait to confront the problem, they'll have a scant four weeks to fix it after election day.

Obama is betting he can win re-election as a Democrat presiding over a weak economy advocating for a tax increase. That's a tall order. The easier course would have been to agree to another one-year extension for all the Bush tax cuts and take the issue off the table.

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