Larry Summers, current Director of the Obama National Economic Council (and former Treasury official under Clinton) spoke to the Economic Club in Washington today (Apr. 9) and addressed the question whether major tax "reform" would be part of the legislative agenda this year. His answer was that it would not, since there are many other issues that will take priority, though there will continue to be a variety of particular tax changes, since so many of the budget proposals include related tax changes. But he suggested that Congress would need to grapple with larger issues in the future. According to BNA's report on the speech, he stated:
"I do think there's a variety of kinds of strains in the tax code, pointed out by the annual treatment of the alternative minimum tax, for example. It suggests that [the] tax code will have to get visited at some point, preferably sooner rather than later."
Having watched the last 8 1/2 years to major and minor tax legislation, I'm not so sure that "sooner" is preferable to "later." Here's why.
There are a number of Bush changes to the Code that should be reversed rather than extended. Putting major "reforms" off will permit the people to become better educated about the impact of those changes, which favor the upper class over ordinary Americans. That understanding could lead to better reforms.
Then, too, the economic crisis and the huge outlays of federal monies to aid the financial sector (commercial banks, investment banks and even life insurance companies) have marked a significant socialization of losses contrasted with the huge gains garnered by those same companies and their managers and owners during the heyday of the Reagan deregulatory mania that permitted reckless speculation. Before Congress steps back to "reform" the Code, we need to understand the extent of these federal outlays and the extent to which they impact other areas of activity. Assuming that the economy does settle without sinking further into a "Great Depression," it may be wise for the nation to face up to the long-term reckoning that will need to be done in terms of government revenues. That situation also could lead to better reforms.
Congress right now seems to be acting still on stale information from before the crisis. Look at the Senate, where an "outrageous" budget bill would provide even more relief for the ultra-wealthy through further limits to the estate tax, at a time when ordinary taxpayers are hurting mightily and the ultra-wealthy --who own most of the financial assets in the country--are either doing well anyway or are directly benefiting from the trillions of dollars in government bailouts of the financial institutions.
We don't need estate tax "reform" that continues to cater to the wishes of the WalMart heirs in Arkansas with their billions. We don't need elimination of the AMT for those who make more than $250,000. We don't need a zero tax on capital gains--not even for small business stock. There's no indication that such tax schemes increase entrepreneurial activity or add to economic growth in ways that help most of us ordinary Americans. They are primarily welfare for the upper crust, like the mortgage interest deduction, the exclusion of gain on sales of residences, and the many similar provisions in the Code.
Congress should take a breather from tax legislation and consider the real issues at play: the enormous need for tax revenues, and the equally significant need to redress the substantial increase in inequality of income in the country. Congress should take these facts into consideration in any major reform of the Code.