Obama’s Populist Tax Reform Proposal

Barack Obama has released the details of a fairly radical proposal to increase tax progressivity which he will make in his state of the union address.

The political impact will dwarf that of Chris Van Hollen’s proposal (which I am sad to say, has been quite dwarfish already). I am very enthusiastic about this. Even Romney is trying to sound populist. I am sure that politicians must have convincing evidence of a populist mood from polls and focus groups even aside from the public polls which, as always, show strong support for soaking the rich. I don’t see how Republicans can win this debate or even avoid debating with each other over whether Obama is a socialist class warrior or not a true economic populist like Republicans.

Matt Yglesias has an excellent (as usual) explainer at Vox. Basically the proposal is to increase the capital gains tax, close tax loopholes used by the rich, tax borrowing by huge banks and then use the proceeds to make permanent and expand various tax breaks for the non rich.

Of course, the proposal is politics not policy — there is no chance of Congress seriously considering it, let alone, passing it. I don’t have a problem with making political gestures when actual policy making is blocked by partisan gridlock. However, good policy and good political gestures are not identical. My one thought is that the tax cuts are much too complicated. I think it would have been much wiser to propose just cutting taxes of the non rich by some fixed amount as in the ARRA (and Obama’s successful 2008 platform) [update: and pay for this with the tax increases which I support as proposed]..

The proposal will be discussed but not implemented. It is therefore much more important that for it be simple and easy to understand than for it to be optimal policy. And to be frank, I think it is important that the proposal give money to almost everyone.

In other words what Lord said about the Van Hollen proposal.

January 12, 2015 12:41 am
Needlessly complicated. Simply raise the exemption level.

update: just to be clear, my proposed proposal would be to keep the fairly complicated loophole closing and tax increases, but to replace the proposed targetted tax cuts with a broad simple tax cut. The quote of Lord from comments should have been paraphrased to “the tax cut parts are ‘Needlessly complicated. Simply raise the exemption level’ and close the loopholes”.