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Obama in Buffalo: tax reform is needed, but a flat tax isn't

President Obama told a town-hall meeting in Buffalo, N.Y., that the US will need to rein in its deficit soon, and that could include 'hard decisions' on tax reform. But he opposes the flat tax.

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While defending the progressive tax code, Obama voiced support for eliminating tax complexities that are rooted in lobbying rather than economic sense. "We've got to take out a hose and just eliminate a lot of these tax loopholes that are out there."

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Some tax-policy experts say those moves could boost tax revenue, and thus help to close the federal budget gap, without raising income-tax rates. But they add that the budget deficits are expected to be so large in coming years that additional fixes – spending restraint and possibly tax hikes – will be needed.

Too many entitlements, too few taxes

A simple problem is that Americans have supported a level of spending – from Medicare entitlements to smaller programs – that's larger than federal revenues. The result is rising national debt and rising interest payments on that debt.

Most economists say Obama is correct that it is much wiser to address the imbalance soon than to wait until the debt burden is even bigger. The Greek debt crisis and European rescue plan have become the latest cautionary tale of what can happen when a nation goes over the fiscal edge.

Still, budget experts say political gridlock on US fiscal policy may be hard to break. One reason is partisan political differences, but another is that neither major party is keen to raise taxes or reduce entitlement benefits.

In addition to better balance between taxes and spending, part of the fiscal solution can be strong economic growth. That can result in higher tax revenue without raising taxes. Education isn't a sure recipe for growth, but Obama told another questioner that improving school performance must be part of the nation's economic agenda.

"If we are not able to train our people effectively," he said, "we will fall behind."