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Romney, Obama and the long, partisan road to tax reform

When it comes to tax reform, there is a lot of common ground, but still many differences, between Romney's approach and Obama's approach, Rogers writes.

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But I also heard some remaining sources of disagreement between Feldstein and Summers, which are probably indicative of where “stumbling blocks” to bipartisan tax reform remain:

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'EconomistMom' (Diane Lim Rogers) is Chief Economist of the Concord Coalition, a non-partisan, non-profit organization which advocates for fiscal responsibility, and the mom of four (amazing) kids to whom she dedicates her work. She’s been blogging since Mother’s Day 2008.

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  1. Beyond decreasing tax expenditures/broadening the income tax base, what are some other features essential to “pro-growth” tax policy? (i) Feldstein seems to favor continued low or even lower effective tax rates on capital income (more consistent with a consumption base), while Summers seems to favor reducing or eliminating the current preferential rates on capital gains and dividends (consistent with reducing tax expenditures under an income base); (ii) Feldstein would favor keeping marginal tax rates low across the income spectrum, including at the very top, while Summers would favor a return to higher rates at the top as necessary to restore fairness (greater progressivity) to the system; (iii) Summers explicitly said that effective (average) corporate income tax rates are too low, not too high, while Feldstein argues for corporate tax reform that is revenue-neutral at best with lower marginal tax rates on profits earned abroad; (iv) Feldstein would probably argue for a lower upper bound on overall revenues/GDP than Summers would, as consistent with the “pro-growth” goal.
  2. Beyond deficit reduction, what is needed to grow the economy’s “supply side?” Feldstein would probably argue for working toward smaller government in scale and scope, while Summers clearly stated that pro-growth tax reform is (necessary but) “not sufficient” to address our nation’s growth needs, because we have “under-invested” in many things.  Beyond raising national saving by reducing the deficit, Summers believes government should more directly help the economy invest more in education, infrastructure, the environment, health care, etc.–the components of the productive capacity of the economy.  He stated that such public investments are a necessary complement to fiscal sustainability in a “pro-growth” fiscal agenda.  (And immediately, Summers emphasized that continued stimulus-type policies, to keep demand for goods and services up, are still necessary–although Feldstein did not disagree with this.)

The conversation between Feldstein and Summers is a good indicator of the potential for achieving bipartisan tax reform consistent with not just “growth” goals but fairness and fiscal responsibility goals as well.  The broad contours of the common ground are indeed well “grounded,” but some of the remaining points of disagreement might be significant-enough stumbling blocks to make meeting halfway still challenging.

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