Overhauling the tax code is now officially a hot issue, and the political competition for the reform mantle is under way.
The latest plans on the table are President Obama’s proposal to lower the corporate tax rate from 35 percent to 28 percent, and Republican Mitt Romney’s new, improved plan to lower individual tax rates across the board. Neither offers many specifics, nor do they deal with the messy details of the deficit, or the best way to pay for big tax breaks.
Still, both plans are politically important.
The two men who remain most likely to face off this fall have laid down markers and have moved the tax-reform debate forward, even if incrementally. And both candidates have tried to make themselves appear sympathetic to audiences they’ve previously been perceived as ignoring or bashing.
In Romney’s case, his desire to limit the deductions for wealthy people shows he’s not just favoring the rich, as he seemed to in an earlier version of his plan. The president’s plan tries to show that he empathizes with the business community’s desire to compete globally through a lower tax rate.
The timing of the two tax plans also sets up the two candidates in direct competition with one another—a savvy move on the part of Romney, who leads in fundraising and convention delegates, but has lost several contests and has been unable to build momentum. The administration said in mid-February that it would soon release a corporate tax plan. White House spokesman Jay Carney said the convergence with Romney's plan was coincidental.
In the broadest sense, pushing for tax reform is a can't-lose political proposition. A Pew Research Center poll last December showed that 59 percent of people surveyed think the tax code is so complex that Congress needs to change it. That’s a leap from similar polling in March 2003, when just 52 percent thought tax reform was needed.
Over the past year, members of both parties on Capitol Hill have expressed support for tax reform. Senate Finance Committee Chairman Max Baucus, D-Mont., and House Ways and Means Committee Chairman Dave Camp, R-Mich., have held more than a dozen hearings to parse out complex topics such as taxing small businesses to lay the groundwork. On Wednesday, Carney urged Congress to act sooner rather than later.“There is an opportunity ... because of apparent interest by both Democrats and Republicans to reform our corporate tax code, to take action now,” he said at the White House. “There’s no reason why Congress couldn’t take this up.”
CNBC’s Larry Kudlow wrote earlier this week that Romney’s new plan would be bolder than his first blueprint. However, other Republican candidates have released detailed tax plans that make Romney’s look less bold by comparison. Newt Gingrich would slash the individual income rate to 15 percent and eliminate any tax on capital gains. Rep. Ron Paul would offer a corporate tax rate of 15 percent and replace the progressive individual income tax with a flat tax. Rick Santorum would offer just two income tax brackets (10 percent and 28 percent) and no corporate taxes for manufacturers. Those are moves that make Romney’s plan, intended or not, seem centrist and potentially more appealing to independents in a general election.
More than anything, the dueling Romney and Obama tax plans underscore the country’s irritation with the current tax code. Neither party can agree on a simple definition of tax reform, but they do agree that American taxpayers and businesses need a new system. The two candidates did not take risks such as spelling out which tax breaks would be cut, or who would be the winners and losers, but they did dip their toes into the debate.
If Romney ends up as Obama's challenger, the pair’s plans offer sketches of their competing visions of the tax world moving into 2013. Under Obama, corporations would have to pay a minimum global tax even if they do lots of their business overseas. It’s like the "Buffett Rule" for companies. Romney’s plan, on the other hand, relies heavily on supply-side economics, assuming that economic growth would arise from broad tax breaks for both individuals and businesses.
Even without specifics, the two plans are worth exploring and remembering in the coming months as the candidates hone their viewpoints on tax policy to sharpen contrasts between them and respond to what they think voters want.