On Friday, I wrote about the current tax debate and bemoaned the failure of Democrats to frame the debate around a more comprehensive proposal of their own, instead of just talking about a more progressive version of the Bush tax cuts. I concluded with my hope that President Obama will put forward his own package of broad, pro-growth reforms to do just that.
Since then, I have two new reasons for hope. First, on Friday afternoon, the President’s Economic Recovery Advisory Board (PERAB), chaired by Paul Volcker, released a long-overdue report on tax reform proposals. Then President Obama said Monday that his team is weighing “additional measures” to move the economy forward, including both extension of expiring middle-class tax and “further tax cuts to encourage businesses to put their capital to work creating jobs here in the United States.” It’s not much to go on, but the president promised more details on these “proposals” in the days and weeks to come.
Looking at these two news items together, are there clues in Friday’s report to what the president is planning? I think there are. Obama chose to mention putting capital to work, which is different than simply talking about putting people to work. I may be reading too much into it (no doubt from watching too much Rubicon), but the president’s choice of words suggests to me that he’s chosen an approach based on corporate income tax incentives, rather than alternatives like payroll tax cuts to boost hiring, which has been suggested at various times by Republicans, Democrats, and both. The corporate income approach would be consistent with options laid out in Friday’s report, which looks at the benefits of corporate income tax changes and treatment of corporate operations overseas, but not other things like payroll taxes.
Drawing from the Volcker report, my best guess is that the president will offer a version of the “direct expensing” proposal to increase incentives for new capital investments. This seems like an easy choice to argue for stimulating demand and getting larger companies to spend the piles of cash they have been sitting on. Plus, it complements the administration’s push for more spending on clean energy and infrastructure, two priorities the president also mentioned as additional measures on Monday. But the real reason I’m betting on this option is the marketing. As the report acknowledges, “direct expensing” is really just “accelerated depreciation” on steroids (insert Rocket joke of the day here), but giving it a new-ish name and taking it to a new extreme are classic markings of the kind of political repackaging Obama may be looking for right now.
If I let my optimism go completely unchecked, I can also interpret the president’s sentence fragment as a sign he’s prepared for more comprehensive corporate tax reform—taking up the Volcker report’s suggestions for simplifying and reducing corporate rates to incentivize investment and make U.S. more globally competitive. Unlikely, I admit. However, the tone and substance of the report’s chapters on corporate tax reform do match up in many respects to Obama’s rhetoric about “putting capital to work” and “creating jobs here in the United States.” These two themes apply to the predicted benefits of several options included in the report:
- Lowering marginal corporate rates will make the U.S. more competitive relative to other developed nations (we currently have the second-highest rates in the world).
- Lowering marginal rates will encourage companies to build and create jobs by reducing the cost of capital for new investment and reduces incentives to use debt to finance new spending.
- Lost revenues from lower rates can be replaced by eliminating special-interest giveaways and tax expenditures, thereby broadening the base and reducing inefficient corporate subsidies and market distortions.
- With lower marginal rates, it will be possible to deal rationally with income earned by U.S. corporations overseas and end the nonsense system of deferring repatriation of earnings to avoid high U.S. taxes.
It’s true that the report is short on specifics and estimates for the options it proposes, which has prompted some to pronounce the entire effort as a missed opportunity for comprehensive reform. This might be true in the sense that Volcker and company could have provided more concrete numbers for the president to cite (and for his opponents to distort), and they could have taken it upon themselves to go beyond what was asked of them and issue an urgent call to arms for overhauling the tax code. They didn’t do either of those things. Instead, they did what they were supposed to do: create an opportunity for the president to do whatever he wants with the report.
That the report is so non-committal doesn’t mean it isn’t part of a larger strategy. Thinking big without announcing a hard-and-fast position to fight for from the outset is classic Obama (can I already say “classic” less than two years into his presidency?). When Obama actually comes out in favor of specific proposals, he frequently likes to do it without telegraphing his punch, as was the case the last time he teamed up with Paul Volcker to endorse the Volcker Rule. So it’s conceivable that both the timing and the tone of this report were planned by the White House—not simply to be ignored and forgotten in the doldrums of August, but to quietly lay the groundwork to support a new tax proposal this fall.
Most of the smart money has been on Congress waiting until after the elections to take up taxes, but that leaves a lot of time for Republicans to pound away at the president’s tax plan and for Democrats to splinter off from the administration’s plan to partially extend the Bush tax cuts. The next couple weeks seems like as good a time as any for Obama to stand with Paul Volcker in a Rose Garden press conference to announce the new “Volcker Plan” for corporate tax cuts. You heard it here first.