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Tax VOX

Will Obama call for tax reform in the State of the Union?

Tax reformers are pushing the president, but aren't sure it's at the top of his agenda.

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Then there is the bedrock question of how much money a new tax code should raise. Democrats see reform as a mechanism to increase taxes. Many Republicans see it as a way to cut taxes and the rest are likely to demand that any new law raise no more than the current tax code.

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Just look at the state of play on Capitol Hill. Senate Finance Committee chair Max Baucus (D-MT) and House Ways & Means Committee chair Dave Camp (R-MI) both say they favor reform. Neither man has said exactly what that means, but I suspect their views are quite different.

It is highly unlikely that gap can be bridged before the next elections, but if it can, it will take Obama and his bully pulpit to pull it off. No member of Congress, not even a chairman of a tax-writing committee, is going to unilaterally call for scaling back the mortgage deduction. Only the president can provide the political cover necessary to do that.

Obama has three key decisions to make in the coming weeks. Does he embrace reform as a keystone issue at all? If so, does he limit his initiative to corporate tax restructuring–as some in the White House are hinting—or include individual taxes as well. Finally, does Obama call for “revenue neutral” reform that keeps federal taxes at their current low levels or does he push a rewrite as part of a larger deficit reduction package?

Watch what Obama says in two weeks. If he ignores reform, the issue is almost surely finished for the next two years. If, by contrast, he puts the issue at the top of his 2011-2012 agenda, something may actually happen.

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