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Let’s Not Forget Tax Reform in Fiscal Cliff Negotiations

As we approach January’s ominous fiscal cliff, it feels as though we’re accelerating. It seems negotiations, on the other hand, have been progressing at a glacial pace.

CQ reports (sub req’d) that Republicans and Democrats are nearing the end of the line in their negotiations regarding how to avoid going over the fiscal cliff.  What both sides agree on is that there needs to be a two step process — a combination of some sort of action during the lame–duck session and more complete steps in the beginning of the 113th Congress.  That’s largely where the agreement ends, though.

Democrats have suggested $800 billion in additional tax revenue over the next decade as a down payment — yes, that is just the start of their reckless tax proposals — and they say that “it is now up to Republicans to show how they could reduce the deficit by a similar amount through entitlement changes and spending cuts.” 

Republicans respond that they’re not so prone to hash out all those details until they’ve gotten a sense of commitment from Democrats that they’ll be willing to work with the cuts Republicans put on the table.

So what we have, essentially, is a call from tax hikes from the Democrats — to the tune of at least $800 billion — and a call for decreased spending from Republicans who are hesitant to put forth a concrete plan until they get the sense that it will be taken seriously by the folks on the other side of the aisle.

For all this back and forth, though, there hasn’t been enough discussion about tax reform.  We’ve discussed how simply giving in on tax hikes would not be any bargain at all; it would mean giving into the liberal democrats’ demands and getting nothing good in return.

Heritage’s J.D. Foster explains that a two-step process is the best recommendation.  But what would this consist of?  He suggests that lawmakers avoid the fiscal cliff for now by making current tax policy permanent and avoiding this “cavalcade of tax increases.”  They should also repeal Obamacare and its “panoply of harmful taxes.”

The next step would be for the 113th Congress to implement real tax reform.  Such reform would entail “reducing the tax bias against saving and investment.”  While he admits this would be an “epic undertaking” he also provides the three basic steps reform would require.

First it would entail “a consensus as to the goals,” which he finds is happening, at least with regard to corporate tax rates.  Second, it would require “many lawmakers to become better informed about current tax law.”  Finally, lawmakers would need “unwavering support from the President.”

Of course, Heritage has offered the Saving the American Dream plan which puts forth a plan for tax reform that would result in a simpler, fairer tax code that would help to reduce our debt and deficit.

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