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Amitai Etzioni

Amitai Etzioni

Posted: December 21, 2010 11:07 AM

Tax Reform: A New Hope for Obama

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President Obama has found a new way to deal with the difficult political situation he is facing as a result of the midterm elections. He recently unveiled a major policy move that cannot be easily boxed in as left or right, and hence serves his tendency to seek common ground. However, unlike previous moves, it does not seek to do so by splitting the difference or compromising. When this was done, as is all too clear in the case of the tax bill, the GOP got all they wanted and the Democrats got rather little. (A two-year extension of all the Bush tax cuts costing $544 billion over the next two years, and - for the richest of the rich--a very low tax on estates --in "exchange" mainly for a 13-month long extension of unemployment benefits, of an estimated value of $56 billion). This time, President Obama is calling for a major tax reform that would greatly simplify the code, close many loopholes, and thus allow reducing the rate without increasing the deficit.

This proposal, on the face of it, has appeal to both sides. The GOP cannot reject out of hand a proposal that promises to lower tax rates. The Democrats, the progressives included, cannot reject out of hand a proposal that entails reducing deductions that serve only those better off (the poor do not pay income taxes, and most of those with modest incomes do not file itemized returns and hence do not benefit from most deductions). Indeed, the progressives can hope that the reform will lead to taxing income from investment at the same rate as that of labor. That is to say: rather than facing gridlock, this proposal has a fair chance to move forward, as both sides vie over how to shape it, rather than to block it.

Moreover, unlike the Dick Morris triangulation strategy, which entails doing a lot of minor things to give the impression of a productive, successful presidency, the tax reform proposal has the magnitude and imagination that could translate into a truly important reform, of both substantive and political appeal. The current tax code is so riddled with concessions to special interests, and is so complex, that it should be relatively easy to show to the electorate the merit of reforming the code and the scope and import of proceeding.

The promise of the tax reform proposals makes one wonder whether there are other major policy initiatives the president can take that have similar qualities. There are no easy answers. I predict that ending the war in Afghanistan may develop in this direction. Currently, the GOP is supporting the engagement while progressives increasingly recognize the desperate, flailing, Vietnam-like quality of the war. However, as the Tea Party's elected officials are seated, looking for places to reduce outlays, and the futility of the continued engagement in Afghanistan becomes even more evident over the next year, the substantive and political merits of disengaging might come into focus.

Other such truly common-ground policies might be found in reducing the deficit, as long as such efforts wait until the economy's growth rate is higher and unemployment falls at least below 7 percent (and is heading still lower). I would add to the list protecting the social safety nets, especially Social Security and Medicare, although I realize that some centrist Democrats hold that the best way the president can show his willingness to do big things is to lead the way in cutting these entitlements. (The GOP has made clear that it does not have the stomach to attack these, unless the president gives them cover.)

Anyhow, just as many good progressive people were losing hope that President Obama would ever find his footing, he seems to have launched a new approach, one that--given the political landscape he must negotiate -- may serve the country and him well. The smaller print--which major policies might fit into this design beyond the tax reform proposals--remains to be seen.

Amitai Etzioni is University Professor at The George Washington University, where he is the director of the Institute for Communitarian Policy Studies. For more discussion, visit icps.gwu.edu.