The tax reform gap between Obama and the GOP is widening

President Obama laid out his vision for the tax code. He's using a 'middle-class economics' agenda aimed at raising taxes on capital gains on high-income groups and redistribute the money from rich to working-class households. While, Republicans want to cut tax rates mostly. Will there be a middle ground? 

Mandel Ngan/Pool/Reuters/File
President Barack Obama is greeted by U.S. House Speaker John Boehner (R-OH) prior to delivering his State of the Union address before a joint session of Congress on Capitol Hill in Washington, January 20, 2015.

In his state of the union address, President Obama laid out his vision for the tax code. Earlier in the day, in a speech to the Chamber of Commerce, Senate Finance Committee chair Orrin Hatch (R-UT) described his. They are not only on different planets. They inhabit different galaxies.

Obama wants to raise capital gains taxes on high-income investors, cap the size of tax-preferred retirement savings accounts, and impose a new tax on big banks. He’d use the money to create or expand tax subsidies or boost direct spending on families with kids, low-income workers, those who want to go to college, and those without access to job-based retirement savings.

Hatch isn’t having much of it. He wants to use tax reform to promote savings and investment.  He rejects tax hikes on businesses. And he’s opposed to using the code to “pick winners and losers.”

In the past, Republicans have backed variations on some of Obama’s ideas. Former House Ways & Means Committee chair Dave Camp proposed a bank tax as part of his reform plan. GOP senators Marco Rubio (R-FL) and Mike Lee (R-UT) have proposed their own expansions of the Earned Income Tax Credit and the Child Tax Credit. And Democrats, including Obama, have backed the ideas of simplicity and neutrality.

Looked at through this prism, there are places where the two sides could deal.

You could say (if you were more optimistic than I) that the two sides are merely staking out their negotiating positions before they move to middle ground. You could say that.

But look at the bigger picture. Republicans want to cut tax rates, encourage more savings and investment, and guarantee that a post-reform tax code does not raise more money than the current version. Obama wants to raise rates on some investment income, and generate additional revenue that could be spent on new government programs. Other than that….

Obama’s individual tax plan is more of a modest tweak than a full blown rewrite of the code, and goes against the grain of the standard cut-rates-and-broaden-the base design. Not only does it boost some rates, but it narrows the tax base by adding new targeted tax preferences.

Post-Camp, Republicans have avoided specifics. Hatch has assigned bipartisan working groups to develop ideas for reform and he’s unlikely to have much to say about details before they finish their work in May.

Since his elevation to Ways & Means Committee chair, Rep. Paul Ryan has said almost nothing in public about his own specific ideas for reform.

But it isn’t hard to see where the two parties are headed. Obama does not want an anodyne debate over tax reform. Rather, he’s using reform rhetoric to support a "middle-class economics"agenda aimed at using the tax code to redistribute some income from the rich to working-class households. For their part, Republicans want to use reform talk as a framework for a business-oriented growth agenda leavened by some targeted breaks for working families.

Is there a middle ground in all this? Sure there is. But neither party seems inclined to go there. In fact, the more they talk, the more apart they seem.

The post The Tax Reform Gap Between Obama and the GOP is Widening appeared first on TaxVox.

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