Obama's budget: What it means for your tax bill

When it comes to taxes, President Obama has proposed what might best be called a conceptual budget—a powerful call for tax reform that is long on principles but, at least when it comes to individual levies, woefully short on specifics.

This is understandable with what is effectively a reelection manifesto. In high campaign season, specifics get a candidate in nothing but trouble. Still, this framework is at once disappointing and illuminating.

It sets up a powerful contrast with whomever the GOP nominates to replace Obama: Should tax reform be used to raise revenues, an explicit goal of this budget, or should it be a vehicle to cut taxes and increase the deficit—the specific aim of every remaining GOP presidential contender?

Yet, Obama’s fiscal plan is disappointing because it is so vague. There is simply no chance Congress will make the tough votes necessary to enact any serious tax reform without a president who is prepared to take the heat for specific, deeply controversial cuts in popular middle-class tax preferences.

But Obama’s budget contains little more than gauzy promises for a “simpler, fairer and more progressive” tax system or, elsewhere, a “simpler, fairer and more efficient’ system. Know anybody against those principles?

There are plenty of proposals to end corporate tax breaks, but when it comes to individual taxes, the Obama budget is the Oakland of tax policy. To borrow from Gertrude Stein, there is no there there.

Yes, he’s proposed taxing dividends at ordinary income rates and found a new way to tax investment firm partners so they could no longer treat their compensation as capital gains. Talking to you, Mitt Romney.  But otherwise, the White House has done little more than rehash some Golden Goodies—allowing the 2001/2003/2010 tax cuts to expire for those making more than $200,000, and capping the economic value of itemized deductions at 28 percent.

This adds up to little more than raising taxes on “the fella behind the tree” and ignores those deductions, exclusions, and credits that benefit middle-income households, pervert the tax code, and keep tax rates high.

Even the much-ballyhooed “Buffett tax” is an empty vessel. After making a major fuss in his State of the Union address about requiring those making a million dollars a year to pay their “fair share” in income taxes, President Obama has proposed…nothing.

As a result, the only plan on the table is one proposed by Senator Sheldon Whitehouse (D-RI). With all respect to the senator, a plan by Whitehouse is not the same as a bill from the White House.

Obama’s unwillingness to get down and dirty with legislative specifics seems ingrained in his DNA. He did the same thing with the health reform law, which Congress turned into a mess. And he did it with financial reregulation which, despite whining from Wall Street and the banks, has done little to prevent a rerun of the financial abuses of the past decade.

Still, pay attention to Obama’s principles for tax reform. They set the stage for what could become an epic battle, if Obama gets reelected and is serious about pursuing tax reform (I wouldn’t bet on either at the moment).

Obama laid out five principles. Three–lowering rates, increasing job creation and growth, and cutting “inefficient and unfair tax breaks” –are the mom and apple pie of tax reform.  It’s just that nobody can agree on what inefficient and unfair means.

But numbers 3 and 5 will generate a political donnybrook. Number 5 is the Buffett rule. Number 3 is to use tax reform to cut the deficit by $1.5 trillion over the next 10 years.

The last one will do the most to separate Obama from his GOP challenger. Rather than shying from the charge that he’s a tax-hiking Democrat,  Obama explicitly vows to use reform to raise revenues—but says he’d get the money almost entirely from rich people. This promise alone will make for an interesting campaign.