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State of the Union address missed a chance for tax reform

While I was out ill for six weeks in December and January, the world changed. Before that, the White House had badly misjudged the political climate. When I went to Ohio with Vice President Joe Biden, he did his best to ignore the evidence of economic pain, giving a pep talk to skeptical factory workers and telling me and other reporters that he believed Democrats would retain their majorities in both the House and Senate.

The election rout came as a shock to President Barack Obama and his administration. But Obama took the lesson and acted promptly.

The first step in moving back to the center was to liberate himself from his dependence on Nancy Pelosi and Harry Reid and cut his own deal with Mitch McConnell, the Republican minority leader of the Senate. In return for a temporary extension of the Bush tax cuts, Obama got not only big pieces of his own economic agenda but approval of the arms treaty with Russia and the termination of "don't ask, don't tell."

Thus fortified, he began to repair the White House, giving it a distinctly Clintonian cast. He had already hired Jack Lew, a skilled negotiator, as his budget chief. He brought in my friend Bill Daley, a politically savvy operative with strong business and banking ties, as chief of staff, and Clinton administration veteran Gene Sperling as his top economic adviser. Liberal Democrats fretted, but the vibes from Washington to Wall Street were good.

Then fate intervened. The Tucson massacre provided the kind of occasion when all of the American people turn to the president to express their horror and grief but also their determination to reach out to each other and recover. As Ronald Reagan and Bill Clinton before him, Obama did not disappoint.

His address to the memorial gathering reminded everyone why his voice had been cherished during the 2008 campaign — and why they might want to keep it in the White House.

Everything was cued up for the recovery process to climax at Tuesday's State of the Union address. It played well with the public, with its invocations of bipartisanship and its bursts of economic optimism. But it lacked a centerpiece.

Obama called this a "Sputnik moment," but offered no such ambitious enterprise. The one I had hoped he would choose is the overhaul of the tax code, which could pay multiple dividends.

I also hoped Obama would talk about closing special-interest loopholes, technically known as tax expenditures.

Erskine Bowles and Alan Simpson, co-chairmen of the president's debt commission, had spotlighted the remarkable fact that $1 trillion a year disappears from the Treasury because of these loopholes.

Recovering those funds ought to be at the top of the economic agenda. Big chunks of them are embedded in two pots that have broad public support — the mortgage-interest deduction and the tax exclusion for employer-provided health insurance.

But at least half of that $1 trillion is steered to favored special interests.

Think what recovering $500 billion a year would mean.

If you used half of it to reduce individual and corporate tax rates, as Republicans would like, you would give a huge shot in the arm to economic recovery and job growth. If you used much of the rest to bolster education and alternative energy, and repair infrastructure, as Democrats wish, you could actually do those things without deepening the deficit. And you could even set aside $100 billion to reduce the national debt. What a great message that would send abroad — that the U.S. is serious about ending its economic tailspin.

© 2011 Washington Post Writers Group

State of the Union address missed a chance for tax reform 01/29/11 [Last modified: Monday, November 7, 2011 1:17pm]

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