Updated at 2:21 p.m.
A presidential commission on tax reform is expected to deliver a report Friday that fails to make any clear recommendations and ducks virtually all of the controversies that have deterred tax reform for 24 years.
Meanwhile, a higher-profile presidential commission tackling the budget deficit is mired in partisan disputes that are intensifying as the November elections draw closer. Co-chairmen Erskine Bowles and Alan Simpson are finding it increasingly hard to keep partisanship out of their deliberations, endangering their deadline of providing clear recommendations to President Obama by the end of the year, according to a source who has spoken to one of the chairmen.
The tax commission, the President's Economic Recovery Advisory Board, is expected to provide a laundry list of possible changes to the tax code without recommending any of them, according to a tax expert familiar with the recommendations. "I guess expectations were low, and those expectations are being met," said that source, who has been informally consulted by commission staff as the report has been compiled.
An economist who worked directly on the commission's report confirmed that it avoided recommendations and was partly meant as "a discussion of the pros and cons" of one policy choice or another.
On corporate taxes, for example, the report rehashes the formula for making taxation more efficient: broadening the base to cover more corporate income, while adjusting rates downward to raise profit incentives for U.S. companies. Does restating this proposition really advance the cause for corporate taxation, the official was asked? "That's a fair question," he responded.
Likewise, the report notes the dilemma about reducing "the tax gap," the more than $300 billion in taxes that go uncollected: Tougher enforcement is needed to capture this money, but tougher enforcement is deeply unpopular. "I agree that these are longstanding questions," he said.
A commission created by President Bush in 2005 came up with several scenarios for overhauling the tax code, including figures for how much taxes should fall in some areas and rise in others to meet a goal of preserving revenue at its then-current level. But that report, which tackled controversies such as a value-added tax and curbing the mortgage interest deduction, was shelved as Bush put his efforts into other policies and soon saw his popularity fall enough to make any major initiative politically impossible.
Obama created his advisory board, led by former Federal Reserve Board Chairman Paul Volcker, early in his presidency to advise him on economic recovery. Volcker later went public with complaints that other Obama advisers were blocking his access to the president, and shortly afterward the commission was given the task of studying tax reform.
However, there were sharp limits on what it could do. Obama said that the commission would study tax simplification, enforcement and corporate tax reform, three areas in which there are relatively fewer partisan conflicts. Furthermore, the White House said that the commission could not interfere with Obama's promise to extend the 2001 and 2003 Bush tax cuts for 95 percent of taxpayers. "That left them very little room to maneuver," said Eric Toder, a former Treasury Department tax official who testified before the commission.
Nevertheless, Volcker often spoke of his responsibilities as covering comprehensive tax reform, and even with the strictures imposed by the White House, it would have been possible for the commission to recommend a value-added tax to raise revenue, for example, or a sharp reduction in corporate tax rates to match recent cuts by other industrialized countries.
The deficit commission has a much broader mandate, and its efforts are under much greater scrutiny. Bowles and Simpson, former Democratic and Republican senators, respectively, represent a tradition of centrist bipartisanship on budget matters, but they face an increasingly polarized political climate on fiscal policy. On Monday, House Minority Leader John Boehner, R-Ohio, blamed Obama fiscal policies for what he said was a failing economy, and he called on the president's economic team to resign. "I think it is going be tough for them" to reach a consensus, said Don Marron, director of the nonpartisan Tax Policy Center.
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