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Obama Can Be Like Reagan With Tax Reform

If President Barack Obama is looking for ways to create jobs and work with Republicans, there’s a project readily at hand for him: tax reform.

By eliminating tax loopholes and lowering tax rates, Obama can tread in the footsteps of no less a GOP hero than President Ronald Reagan, who worked with Democrats to reform the tax system in 1986.

In fact, next year is the 25th anniversary of that bipartisan achievement, the work of Reagan, the late Reps. Jack Kemp (R-N.Y.) and Dan Rostenkowski (D-Ill.), former Rep. Dick Gephardt (D-Mo.) and former Sens. Bill Bradley (D-N.J.), Bob Kasten (R-Wis.) and Bob Packwood (R-Ore.).

That project — along with the lowering of marginal tax rates in 1981 by Reagan and Congress (originally, Kemp’s idea) — led to a boom era in the 1980s that created 16 million jobs.

Obama could easily adopt (or adapt) one of three bipartisan tax reform proposals already in play.

The latest, unveiled Wednesday by a panel headed by former White House budget director Alice Rivlin and former Sen. Pete Domenici (R-N.M.) would establish just two income tax rates, 15 percent and 27 percent, down from the present top rate of 35 percent (or 39.6 percent, if President George W. Bush’s tax cuts expire).

The corporate tax rate would fall from 35 percent to 27 percent in return for closing most business loopholes.

More controversially, the plan would create a new 6.5 percent national sales tax to reduce deficits.

Last week, the two heads of Obama’s national debt commission, former Sen. Alan Simpson (R-Wyo.) and former White House Chief of Staff Erskine Bowles, proposed eliminating all $1 trillion in “tax expenditures” to reduce individual rates to 8 percent, 14 percent and 23 percent and cut the corporate rate to 26 percent.

A third plan, the only one in actual legislative form, was introduced in March by Sens. Ron Wyden (D-Ore.) and Judd Gregg (R-N.H.).

It was Wyden who suggested to me the benefits of tax reform to the beleaguered Obama.

“One, it’s a job creator in the here and now, not light years in the future,” he said. “Two, it’s a unifier, bringing together labor and management. And, third, it gets beyond thoroughly partisan politics.

“Instead of Democrats and Republicans beating up on each other,” Wyden said, “the real challenge is to take on the interest groups who have hijacked the tax code” since 1986, he said.

The Wyden-Gregg proposal has been estimated by the conservative Heritage Foundation as potentially creating 2.3 million new jobs a year, increasing disposable income for average families by $4,000 and boosting gross domestic product by $300 billion (or 2 percent) a year.

The measure also has been positively reviewed by the Manufacturers Alliance, the centrist Tax Policy Center and the liberal Center for American Progress and Citizens for Tax Justice.

Although it’s designed to be revenue-neutral, Heritage and others back up Wyden’s claim that its supply-side growth effects would actually raise government revenue and help lower deficits.

The measure would establish three individual income tax rates instead of the present six — 15 percent, 25 percent and 35 percent — and lower the corporate rate from 35 percent (second-highest in the world) to 24 percent.

It would triple the standard deduction, retain the popular mortgage interest deduction and child and earned income tax credits and permanently eliminate the alternative minimum tax.

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