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Obama "moves the cheese"

Posted by Admin Posted on Dec 10 2010

Perhaps the best indication of an almost overnight shift in the reactoins to the tax compromise is today's New York Times op-ed page.  At the top of the page, Paul Krugman (liberal) grudgingly acknowledges the good parts of the tax compromise,  He shifts his objections to the timing of the renewed tax cuts -- the 2012 election year.  At the bottom of the page, David Brooks (conservative) explains how the President has postioned himself for further compromises with the Republicans without sacrificing his primary principles.

Who's right?  Who knows!  What's important is that the discussion has changed. Yesterday, the House Democrats voted against the compromise, although there is no bill for the to vote against.  At the same time, a minor procedural vote related to the compromise passed the Senate 65-17, signalling broad support in that chamber.  Now the chattering class is beginning to move towards the center, and it seems likely the compromise will eventually pass.

And for all of the complaints about the President's negotiating style, while Congress and the pundits are catching up to him he seized control of the coming election year fight over the tax code for the next two years.  The front page of this morning's NYT reports that the White House is looking at an overhaul of the federal income tax system based on eliminating deductions (simplification) and reducing rates.  Any such "reform" necessarily picks winners and losers, so the question will be what's left after the lobbyist's get rhough with everything.

Interestingly, business lobbyists are once again pointing to the complexity of the tax code and the cost of compliance as competitive disadvantages. This position is disingenous, to say the least, as much of the complexity was introduced by Congress reacting to businesses shaping transactions to get around the tax code.

The real test will come when and if a bill picks winners and losers. When businesses are asked to give up specific tax advantages in the code, we'll see whether they still think complexity is a competitive disadvantage.