Domestic Taxes

Experts say tax reform will take backseat in Obama’s State of the Union address

President Obama made some glancing nods toward tax reform in his State of the Union address in 2011. And a year later, tax observers from both sides of the aisle say not to expect much more this time around.

To be sure, the president is expected on Tuesday to urge lawmakers to hammer out a year-long extension of the payroll tax cut, which White House officials have called a top priority for 2012.

And with the recent revelations that Mitt Romney, his could-be rival this fall, pays around a 15 percent effective tax rate, Obama could also continue to make the case that the wealthy need to pay their fair share in taxes.

{mosads}“I certainly expect the president to talk about tax fairness, hammering home some of the themes he’s been talking about recently,” said Michael Linden of the left-leaning Center for American Progress.

But with lawmakers on both sides of the aisle laying the groundwork for reform, some tax analysts say they expect the idea of a broad overhaul of the tax code to get at most a passage or two in Tuesday’s State of the Union.

That might be, at least in part, because very few Capitol Hill observers believe that a detailed tax reform plan could be passed in 2012, during the heat of a presidential election and the battle to see which party controls Congress next year.

“It does make you stop and think about whether you want to talk about it this year when that’s the case,” said Ken Kies, a top tax lobbyist and former Republican congressional aide.

“They also haven’t done a thing about it in a year,” Kies added. “If he mentioned it again, it’s one more of those ideas that he hasn’t followed up on.”

In his 2011 State of the Union address, Obama called on Democrats and Republicans to work together on a plan to strip tax breaks from the corporate code and lower the top corporate rate. Later on in the speech, he also called for the individual code to be simplified.

But the administration never released its own corporate tax reform framework last year, even though the Treasury Department was working on one.

Still, Linden said that Obama could bring up tax reform to try and buttress one of his key arguments – that Congress is to blame for the gridlock in Washington.

“I think most people realize that the president’s tried, and Republicans in Congress don’t seem willing or able to do the same,” said Linden, CAP’s director for tax and budget policy.

Both Linden and Kies acknowledged that, since voters basically loathe the tax code, it wouldn’t hurt Obama to more generally push for the tax code to be simplified and made fairer.

“You have to say something in your 90 minutes. That’d argue for putting on the list,” Kies said. “It’s a safe thing to mention. Do you really want to get up there and say let’s do immigration reform? Do you really want to say let’s close Guantanamo?”

The two analysts also noted another reason for the president to keep it general: The wide gap that still needs to be bridged over tax reform – no matter what Obama says on Tuesday and no matter how many congressional leaders have called the issue a priority.

Just last week, for instance, the union leader Richard Trumka, a member of the president’s jobs council, dissented against the group’s proposal to revamp the corporate tax code.

And according to news reports, the president is also expected on Tuesday to propose tax preferences for businesses that return jobs to the U.S. – the sort of incentives that are often targeted in a tax reform push.

“The concept of tax reform is bipartisan, in the same way that progress is bipartisan and jobs are bipartisan,” said Linden. “The argument is how to do those sorts of things. I don’t think that in reality there’s a whole lot of middle ground right now.”

This post was updated.

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