Obama should defend record, talk tax reform

When President Obama steps before a joint session of Congress to deliver his State of the Union speech tonight, he has a real chance to set the tone for his 2012 reelection campaign.  

Having sat through 26 State of the Union addresses as a member of Congress, I have some thoughts about what he should do.

First, he should make it very clear that there has been real progress during the last three years in keeping our country out of an economic calamity. Republicans will claim that he is simply saying, “It could have been worse.” But that badly misses the point, and Obama should not shy away from making his case.

His actions in saving the American automobile industry, providing a stimulus to our economy and passing badly needed healthcare legislation and financial regulatory reform are of real consequence. We would be less of a country without the initiatives. It is interesting to note that Republicans stubbornly refuse to recognize that the economy is starting to get better, with unemployment coming down. They seem to be rooting for failure for their own political gain.

The president should speak to the progress made to date and also recognize that this was just a start and much more is left to be done.

This serves as a bridge to a discussion of tax reform and deficit reduction, which are by no means mutually exclusive. I believe it is time for the president to embrace much of the recommendations of his own budget reduction commission, the National Commission on Fiscal Responsibility and Reform headed by Erskine Bowles and Alan Simpson.

A centerpiece of this would be personal and corporate tax reform by lowering rates while eliminating some (but not all) of the tax preferences currently in the code. The Simpson-Bowles commission recommended that tax reform be revenue-positive — that is, it should lower rates and provide some additional revenue to apply to the deficit. The president so far has supported only revenue-neutral tax reform, which would not result in any deficit reduction. He should abandon this particular approach.

Embracing tax reform that would lower the maximum rate for individuals and corporations to either 28 percent or 25 percent while at the same time eliminating the much lower 15 percent rate for capital gains, dividends and interest also would provide maximum heartburn for his most likely GOP opponent Mitt Romney. Romney recently estimated his own effective tax rate at 15 percent because he relied heavily on investment income rather than wages. Let the Mitt Romneys of the world pay the same rate as people who are paid salaries.

Embracing tax reform would permit the president to sidestep the issue of whether or not the higher pre-Bush tax rates should only apply to couples earning $250,000 or more annually (his current position) or $1 million (the position of many congressional Democrats) when they expire at the end of this year.

If Congress were really to pass comprehensive tax reform with a maximum rate of either 25 percent or 28 percent, the pre-Bush maximum rate of 39.6 percent or the Bush maximum rate of 35 percent would no longer be relevant.

Also, it is time for the president to steal some thunder from his Republican opponents and fully embrace increased domestic production of oil and gas. Six years ago, the United States was importing 60 percent of the oil it consumed. Now imports have fallen under 50 percent of consumption. Increasing emphasis on domestic oil-and-gas production has the dual effect of creating well-paying American jobs and making us less subject to foreign policy blackmail by oil-producing powers in the Middle East and elsewhere.

This would require the president to change his strategy on oil-and-gas taxation issues. For the past three years, Obama has advocated eliminating tax incentives used primarily by domestic independent producers who drill 95 percent of the new wells in the United States. Congressional Democrats have consistently taken the position that any tax changes should only apply to the big five major integrated oil companies that drill most of the wells outside the United States. The president should move to the position of congressional Democrats on this issue.

The American public wants positive, optimistic leadership in the years ahead. The president’s speech can set exactly the right tone.

Frost served Texas’s 24th congressional district from 1979 to 2005.