The failure of the super committee and the role the Bush tax cuts played in that breakdown points up just how hard tax reform will be.
NEW YORK (CNNMoney) — No one ever said tax reform would be easy. But the failure of the super committee points up just how hard it will be in the next year.
Both Democrats and Republicans have said they want to overhaul the tax code.
The problem: The parties continue to have very different ideas of how much more the wealthy should pay in taxes relative to everyone else. And their fight often centers on — what else? — the Bush-era tax cuts.
To pretend that disagreement will be resolved and real tax reform can be achieved easily or quickly is, well, three steps past crazy.
“As long as politicians keep squabbling about what to do about the Bush-era tax cuts, we are doomed,” Urban Institute resident fellow Howard Gleckman wrote in TaxVox.
The dispute between Democrats and Republicans flared up earlier this month when Republican Sen. Pat Toomey, a member of the super committee, put forth a tax reform proposal.
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Toomey’s proposal would lower income tax rates across the board and also cap how much individuals could benefit from many tax breaks. Capital gains were a notable exception.
On net, by his estimates, Toomey’s proposal would raise more revenue than the current code — about $250 billion more over a decade by standard measures.
In a general sense, the Toomey plan followed a reform framework that fiscal experts and many in both parties have endorsed. It would broaden the tax base by reducing the value of tax breaks, and use some of the new revenue raised to help with deficit reduction and some to offset the cost of lower rates.
And the Toomey plan appeared to break with conservative Republican orthodoxy against all tax revenue increases except those that result from economic growth.
But here’s where the headache-inducing Bush tax cut dispute spoils the party, kills all hope and generally annoys the bejesus out of tax policy experts.
Toomey’s plan would only raise revenue if one assumes the Bush tax cuts are made permanent.
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But if the tax cuts were to expire — as they are set to do at the end of 2012, greatly increasing tax revenue — Toomey’s plan would almost certainly bring in less than the current system.
His plan likely would also score as a revenue loser if one assumed that only the Bush tax cuts affecting high-income households were to expire, as the Democrats and President Obama have proposed.
That’s a key reason why Democrats complained that Toomey’s plan would amount to another big tax cut for the wealthy.
Never mind that both the Democrats’ stance on the Bush tax cuts (extend most of them) and the Republicans’ stance (extend all of them) would add an estimated $3 trillion to $3.7 trillion to deficits over the next decade.
Neither are particularly tenable positions when you’re trying to negotiate how to reduce deficits.
“Rather than bickering endlessly about whether what they are doing is a tax cut or a tax increase compared to a law first passed a decade ago, lawmakers should start talking about what a fair and economically efficient tax code should look like,” Gleckman argued. “They ought to just decide how much tax revenue they need and then figure out how to raise it.”
That would be hard too, of course. But at least it would be a more productive discussion.