Obama's $250,000 mistake

obama_082710.gi.top.jpg By Jeanne Sahadi, senior writer


NEW YORK (CNNMoney.com) -- President Obama's tax reform task force will deliver its long-overdue report on Friday offering a list of ways to improve the federal tax code.

Obama had asked the group to examine ways to simplify the code, reduce tax evasion, and close corporate loopholes -- and to do so with an eye to raising more revenue.

The president, however, also tied the group's hands by not allowing it to consider any options that would raise taxes on the vast majority of Americans.

That directive, of course, was in keeping with Obama's campaign promise not to increase taxes on any married couple making less than $250,000 or any single individual making less than $200,000.

In other words, the panel wasn't allowed to consider anything that would tap 98% of the country.

By constraining the task force, he essentially closed off any hope that the panel would consider ways to fully reform the tax code.

That's because in order to both simplify the code and raise more revenue, lawmakers would need to jettison or scale back many of today's credits, deductions and exemptions. But Obama's pledge would make that very difficult.

"Tax breaks are not limited to people making over $250,000," said Rutgers economics professor Rosanne Altshuler, who served as the senior economist for President Bush's bipartisan tax reform commission in 2005.

Case in point: work-based health insurance. Any money an employer pays toward the premiums and other medical costs for employees is treated as tax-free income to workers. That tax break and the mortgage interest deduction are the two most expensive -- and popular -- tax breaks on the books.

Taken as a group, tax breaks reduce federal revenue by more than $1 trillion every year.

All those tax breaks are a key reason why nearly half of all tax filers end up owing no federal income tax. Congress has chosen to administer social policy through credits and deductions designed to encourage people to do things like buy houses and save for retirement, according to Roberton Williams, a senior fellow at the Tax Policy Center.

Once a tax break is passed into law, it's hard to eliminate. And there's very little follow-up by lawmakers to assess whether it's working or not, disproportionately rewarding one group of taxpayers over another.

The upside to streamlining tax breaks and simplifying the code is that it can lower overall tax rates while bringing in even more revenue than before.

Report likely to be overshadowed

Tax experts aren't exactly waiting with bated breath for the task force's report because all eyes are on Obama's bipartisan fiscal commission, which he created to recommend ways to effectively curb the growth rate in U.S. debt. The president said he wanted the debt panel to consider "everything on the table."

The expectation is that the commission will address head-on the fact that the fiscal outlook can't be cured on the backs of taxpayers making more than $250,000 alone.

"[A]ny plausible plan to set this country on a sustainable budget path will require higher tax revenues, borne by the majority of Americans," tax expert Edward Kleinbard wrote in a recent article titled "Sacred Tax Cows: It's them or us."

Obama has said he will take the fiscal commission's report into consideration when he puts out his 2012 budget proposal in February. He has promised that he will "start presenting some very difficult choices to the country." To top of page

 
Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.98%3.95%
15 yr fixed3.05%3.05%
5/1 ARM3.32%3.71%
30 yr refi4.05%4.03%
15 yr refi3.12%3.11%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,805.41 127.51 0.76%
Nasdaq 4,483.72 30.92 0.69%
S&P 500 1,964.58 13.76 0.71%
Treasuries 2.27 -0.00 -0.09%
Data as of 6:12pm ET
Company Price Change % Change
Ford Motor Co 13.78 -0.62 -4.31%
Microsoft Corp 46.13 1.11 2.47%
Apple Inc 105.22 0.39 0.37%
Bank of America Corp... 16.72 0.12 0.72%
Yahoo! Inc 43.50 0.90 2.11%
Data as of Oct 24

Sections

New York headlines took a straight forward and direct approach with NYC's Ebola news. More

The midterm elections are around the corner, and the economy remains a top concern. With unemployment down and inflation low, why do people still feel the economy stinks? More

Shares of Facebook recently topped $80. They've more than quadrupled from their post-IPO lows of two years ago. Can Mark Zuckerberg keep the momentum in mobile going? More

Host a furniture market. Here's how small town High Point, N.C. rakes in this much money -- twice a year. More

If you're looking to fly this holiday season, the clock's ticking to get the best prices. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.