Tax Reform

The decision by Standard & Poor's to downgrade America's credit rating marks the clearest sign yet that we have entered a new era in American politics.

In retrospect, the dominant political reality of the Clinton years was the culture war, a struggle over what kind of nation America would be once being anticommunist ceased being a meaningful national identity. Politics in the Bush years was dominated by the "war on terror," the right's effort to reenact the Cold War struggle and the left's recovery of its own antiwar tradition in response.

Oh, AAA credit rating -- we never knew how much we loved you until we lost you. Just one more chance, please!

It's like a bad breakup. The warning signs were there. He starts to nitpick and then complain so much more than when the romance began. Remember when you could do no wrong?

He went along when you demanded all the luxuries in life even though you couldn't afford them. What's a few overextended credit cards when you are having a good time?

And then, he started issuing those self-important warnings? Who does he think he is?

You can't say we didn't have a heads up. Just a few weeks ago, S&P said:

"We may lower the long-term rating on the U.S. by one or more notches into the 'AA' category in the next three months, if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future."

Congress uses the tax code to promote a broad range of policy objectives. Rather than directly spend government revenue on policy programs—or implement new regulation—Congress has enacted a series of tax provisions that effectively subsidize certain politically and socially desirable activities.

These “tax expenditures” take the form of deductions, exemptions, or credits to taxpayers who engage in the targeted activity. From a budgeting perspective, they are treated as foregone government revenue, rather than increased government expenditure.

Picture a negotiation with your boss that goes something like this:

You walk in with dynamite strapped to your body and demand a raise.

Nope, he says, no raise -- that's off the table.

Fine, you say, then I am not going to do any work.

I can take that, he says, as long as it goes hand in hand with no benefits for you.

All righty then, you counter, but I'll be stealing office supplies.

Fine. Fine. You shake and you have a deal.

That's how the debt-ceiling deal feels to me.

(originally published at Fox & Hounds Daily)
You couldn't come up with a better time than right now if you wanted to remake the California tax system.

It won't be easy, but many of the stars are aligned. And no one has more incentive to make such a change happen now than Gov. Jerry Brown.

While the details of the debt-ceiling deal remain fuzzy, this much is clear: Barack Obama may be president, but the Tea Party is now running Washington. How did this happen? Simple: This is what American politics looks like when there's no left-wing movement and no war.

The debt ceiling deadline is days away, but something unusual is happening in Congress. Rather than playing the short game, and following the old tradition of kicking important budget decisions down the road, dozens of senators are building the case to think long. Even as they plan a vote to avoid default, they have a rare opportunity to accompany a debt ceiling increase with a plan to bring our fiscal situation under control. They should take that opportunity.

If the debt-ceiling negotiations reveal anything about America in 2011, it is this: we live in an age of political amnesia. From the day the Twin Towers fell until the day Barack Obama was elected president, Washington Republicans did virtually everything in their power to increase the deficit.

Maybe the cynics are right. Maybe it will prove too heavy a lift to use the occasion of the debt ceiling increase to put in place a large, specific budget fix to reduce our massive deficits.

Enough policymakers now seem to buy the importance of lifting the debt ceiling, and it appears we will find a way to do so in time, thereby avoiding an (inexcusable) default.