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What will the debt deal mean for tax reform?

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Here’s why: The $1.5 trillion deficit reduction target will presumably be measured relative to current law, which assumes the 2001/2003/2010 tax cuts expire at the end of next year. As a result, any changes Congress makes in the Bush/Obama rates would probably be scored by the Congressional Budget Office as a tax cut and only add to the deficit.

As for the Democrats, it is hard to imagine that after the concessions they just made on spending, their panel members would buy into any tax reform unless it reduces the deficit.

A basic rule of tax reform: It will go nowhere if the parties can’t agree on the ground rules. And Rule #1 is lawmakers must determine whether reform should be a revenue-raiser or revenue-neutral. Unless it can settle that issue (and it can’t), the panel is very likely to simply leave taxes out of its plan entirely.

The other opportunity for near-term tax reform could come with the expiration of the Bush/Obama tax cuts in December, 2012. President Obama could use that deadline as leverage for reform and, if he laid out a bold plan, might even pull it off. But such an aggressive step isn’t Obama’s governing style. After all, he blinked when the GOP called his bluff on extending the 2001 and 2003 tax cuts last December. There is no reason to believe he’ll act boldly in the midst of his reelection bid.

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