Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

Listen for what Obama says – or doesn't say – about taxes

Closing loopholes to stop sequestration will likely derail broad reform

Feb 12, 2013 @ 2:41 pm

By Mark Schoeff Jr.

Barack Obama, taxes, sequestration
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((Photo: Bloomberg News))

In his State of the Union speech Tuesday night, President Barack Obama will foreshadow the prospects for comprehensive tax reform – either through what he says or what he doesn't say.

It's likely that we'll learn more by the silence. On most issues, getting anything done in Washington is a heavy lift. Broad tax reform is perhaps the most complicated, difficult of them all. It requires the type of presidential leadership that often is launched through a major speech, such as the one Mr. Obama is giving in a few hours.

“If the president wants it to happen, he's going to have to pull on both oars,” said Dean Zerbe, national managing director of alliantgroup LP and a former Republican tax counsel for the Senate Finance Committee. “It needs to be a centerpiece of the speech, not a throw-away line.”

One hint that Mr. Obama is not making broader tax reform a priority is that he is seeking to reform tax deductions and other tax breaks as part of a deal to stop $85 billion in automatic spending cuts for this fiscal year slated to go into effect on March 1.

In a recent national radio address, Mr. Obama cited the successful efforts to delay sequestration by two months through tax provisions that were included in the New Year's Day fiscal-cliff bill. He would like to draw water from that well again in the next few weeks to push off sequestration once more.

“This time, Congress should pass a similar set of balanced budget cuts and close more tax loopholes until they can find a way to replace the sequester with a smarter, long-term solution,” Mr. Obama said.

By modifying tax deductions and loopholes for a short-term gain – delaying sequestration – Mr. Obama could be taking valuable chits off the table that would be needed to pass larger tax reform. They wouldn't be available for pay for lowering tax rates across the board, as many Republicans and some Democrats want to do.

“He's draining the pool of potential revenue raisers that could be used for tax reform,” Mr. Zerbe said. “Everything you see and hear indicates [tax reform] is not a high priority for the White House.”

While we wait to hear what Mr. Obama has to say about taxes in SOTU, the primary advocate for tax reform, House Ways & Means Committee Chairman Dave Camp, R-Mich., is continuing a process that he hopes will lead to a comprehensive overhaul of the tax code with a hearing on Thursday about charitable contribution deductions.

For Mr. Camp, broad tax reform is a steady march that involves hearing from many voices on how the details might impact them. On Thursday, charities are in the witness chairs.

Members of Congress, even influential ones like Mr. Camp, lack the bully pulpit that Mr. Obama will occupy tonight. It is up the president to make tax reform happen.

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