PRESIDENT OBAMA has asked Paul Volcker to lead a review of our tax code. As reported, the mission statement is a bit of a mish-mash:
White House officials disclosed the tax initiative on Tuesday, saying they intend to explore ways to better enforce the current code [and] improve it by eliminating corporate subsidies and untangling its many complexities. . . .
Administration officials said the group faces two limitations: no tax increases before 2011 and no tax increases on families earning less than $250,000 a year. The tax force is to report its recommendations by Dec. 4.
But if anyone can cook a little mish and a lot of mash into a tasty stew, it's Mr. Volcker. He's honest. He's smart. And he knows what he's talking about, which will be a refreshing change for this administration.
Look for radical tax simplification, as in the Reagan tax overhaul of 1986. A great way to simiplify is to throw out targeted tax breaks, as Reagan also did. Chopping out the undergrowth is fine, so long as marginal tax rates are reduced at the same time, which Reagan also did, natch.
What helped sell the Gipper's radical overhaul was "revenue neutrality." Each time the effective tax rate was ratched up by closing a loophole, the marginal rate was ratcheted down by an equal number of estimated dollars.
The kicker here, of course, is that the only complexities the task force can recommend eliminating are those that help business. Those that protect almost 40 percent of individual tax filers (soon to be almost 50 percent) from paying any taxes whatsoever, they're sancrosanct.
Likely outcome: The panel will recommend doing away with a lot of business deductions and lowering the top individual marginal rate a point or two -- a large effective tax increase partly offset by a small individual tax rate reduction.
I'll be cheering for Mr. Volcker to demand revenue neutrality.
UPDATE: Thanks for the link from Lose an Eye.
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