Democrats Have Opportunity on Taxes

In 2008 Barack Obama promised that he would end George W. Bush's soon-to-expire tax cuts for taxpayers who make more than $250,000 a year. His rationale: we can no longer afford expensive cuts that haven't created jobs or grown the economy. Most voters agreed. But as this year's Dec. 31 deadline approached, the president struck a deal with the GOP to extend the Bush-era rates for the rich as well as the middle class. Why? Because Republicans refused to budge, and Obama was afraid of looking like a "typical" tax-hiking liberal.

For more than 20 years the GOP has routinely beat the snot out of Democrats on taxes. In the '80s Republicans figured out that everyone likes lower rates, regardless of the consequences, and so that's what they've been offering voters ever since. Progressives, meanwhile, have been forced to play the party poopers, arguing that, hey, maybe we can't keep cutting taxes if we want to balance the budget and finance Medicare.

To regain the momentum they lost in the midterms, Democrats should stop talking about raising or lowering taxes and start talking about simplifying them instead. In its new report, Obama's deficit commission notes that the U.S. is neither raking in enough revenue to fund social safety-net programs nor being efficient or fair about the revenue it does take in. The report suggests two fundamental reforms. First, eliminate loopholes that distort the market and largely benefit more affluent taxpayers. Then use the extra revenue to reduce marginal rates by as much as 12 percentage points. Other options include cutting the corporate income tax, slapping a higher tax on gas, and capping revenue at 21 percent of GDP. The overall effect, writes Glenn Hubbard, a top Bush economic adviser, would be "a progressive reform" package that simplifies an increasingly complex system while preserving incentives to work and invest.

Recently, some Democrats, including Obama, have made noises about simplifying taxes. But mostly they've been hesitant. The president "is not considering specific polic[ies]," a White House spokesperson said recently, "and no decisions have been made about whether this is a priority he will push for." A smarter strategy would be to release an official Democratic reform package that lowers rates for everyone, eliminates giveaways to special interests—and puts Republicans on defense. By rebranding themselves as the party of a fairer, simpler tax code, Democrats could finally end a fight they've been losing for decades. But they have to beat the GOP to the punch.