Practical Economics


What's Different About Obama's
Debt Commission

Richard DeKaser

A similar Bush effort disappeared without a trace. This time, reform stands a chance.



The president’s debt commission -- the National Commission on Fiscal Responsibility and Reform -- will produce an excellent report, full of ideas for fixing our nation’s most threatening economic problem. And though recent experience may argue otherwise, the odds on some modest progress seem good.

One doesn’t have to reach far back in history to find our last attempt at major fiscal reform. It was January of 2005, when President George W. Bush created the Advisory Panel on Federal Tax Reform. Cochaired by a centrist Republican and a Democrat with strong bipartisan credentials, and staffed by respected experts in the field, the panel was charged with recommending changes to “make the tax code simpler, fairer, and more conducive to economic growth.” Published in November, its recommendations were, as directed, “revenue neutral,” meaning that they would have zero effect on the federal budget deficit. The panel’s task was to focus exclusively on the tax code, minimizing its distorting incentives and promoting its efficiency.

Economists across the political spectrum were supportive of the report. In a summary that represented the conventional wisdom at the time, the Tax Policy Center -- a think tank jointly run by the Brookings Institution and the Urban Institute -- said, “The report contains a number of interesting and important proposals that would generally move the structure of the tax system in the right direction, with simpler rules, a broader base, generally lower effective marginal tax rates, and more consistent treatment of different types of income.”

But for all practical purposes, the report was DOA. After it foundered for a month without legislative sponsorship, then-Treasury Secretary John Snow said: "We are not going to put an artificial timetable on this thing. We are going to give the president well-considered proposals and then he will decide where he wants to go." A bill was never introduced in Congress, however. By January 2006, all was forgotten.

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One explanation for the effort’s swift demise is that the whole thing was a cynical ploy; it created an impression of fiscal seriousness but was merely a delaying tactic designed to silence calls for swift action. A slightly more charitable explanation is that tax reform simply was squeezed off the priority list as the war in Iraq heated up. In either case, the political will to strip tax breaks from the few for the ultimate benefit of the many just didn’t exist.

Fast-forward to 2010. The similarities between Bush’s attempt and Obama’s are obvious: centrist, bipartisan cochairs; lofty, good-government ideals; and a staff of pragmatic experts. But the differences are notable, too.

First, Bush’s tax panel delivered its report at the start of a very tough midterm election year. Republicans were serious underdogs in 2006, and dispensing tough medicine was hugely unpopular. In contrast, Obama’s commission is scheduled to deliver its report Dec. 1 -- immediately after the midterm elections and perfectly timed to minimize political damage.

Second, Bush’s tax panel focused narrowly on the tax code, while Obama’s commission is charged “to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.” So everything is on the table, including entitlement spending and even the recently enacted health care legislation. That could enlist support of Republicans by offering them an opportunity to repeal “Obamacare.”

Lastly, the moment seems ripe. The explosion of deficits and bailouts has hit a nerve, and public outrage is intense. According to polling by the Pew Research Center, the percentage of survey respondents identifying the deficit as a top national problem is the highest in nearly two decades. Unemployment concerns still rank higher, but by the time the report comes to light, the number of jobs in the economy will likely be growing, while the deficit will still be perceived as a crisis. And as Rahm Emanuel, Obama’s chief of staff, says, “You never want a serious crisis to go to waste.”




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