Former Obama aide Lawrence Summers says tax reform is inevitable

The need to deal with the soaring budget deficit, make U.S. businesses more competitive abroad and address the widening gap between rich and poor make U.S. corporate tax reform inevitable, said former top Obama administration economic aide Lawrence Summers.

“Leaders in both parties should commit themselves to the goal of tax reform for growth, fairness and deficit reduction,” Summers wrote in an opinion article in the Financial Times on Monday. “Nothing that is likely to be done during the next presidential term will be more important.”

Summers, a former Treasury secretary who left the White House in late 2010, made his pitch for tax reform six days after President Obama unveiled his plan to significantly reduce the top corporate tax rate to 28% from 35% and ax dozens of loopholes and other breaks.

Some key Republicans immediately criticized Obama for not reducing the tax rate enough and election year politics make any action unlikely in 2012.

But Summers argued that the corporate tax code is in desperate need of its first overhaul since 1986 and that Washington politicians will find the changes are inevitable given the problems the nation is facing.


Eliminating corporate tax breaks is a much better way to raise money that increasing marginal corporate or individual rates, he said.

The elimination of those breaks would allow the government to lower the U.S. corporate tax rate, one of the highest in the world, to make American companies more competitive and reduce incentives to ship jobs overseas.

The changes, Summers said, would have the added benefit of making the tax code fairer to reduce the growing inequality between rich and poor.

“As is well recognised, America’s rich have become richer with the share of income going to the top 1 per cent increasing from about 10% to about 20% over the last generation while middle class incomes have stagnated,” wrote Summers, an economist who is on the faculty at Harvard University. “There is plenty of room for discussion about the causes of this growing gap ... but it is undeniable that certain fairly expensive aspects of the current tax system favour the most fortunate and border on the indefensible.”

But Summers said that having the presidential candidates put out highly detailed tax reform plans ahead of November’s election would be counterproductive. In addition to Obama, Republican presidential candidate Mitt Romney last week also outlined a broad plan, but they both left key specifics for later.

Summers warned that the more tax issues are discussed, the more likely candidates will be to make promises to voters that would hinder hopes for a bipartisan deal after the election. Instead, “leaders in both parties should commit themselves to the goal of tax reform for growth, fairness and deficit reduction,” leave all possible options on the table and address the issue along with Congress after the election.


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