Bogusia blog

Q+A: Will Obama talk tax reform in State of the Union?

WASHINGTON (Reuters) – President Barack Obama has proposed revamping the dizzying U.S. tax code and many observers are eyeing his State of the Union address on Tuesday for signs of his commitment.

Presidential leadership is essential for such a politically and economically complex task, last successful after Republican President Ronald Reagan struck a deal with congressional Democrats for a major code rewrite in his second term in 1986.

Reagan used a State of the Union address to publicly direct advisers to make recommendations for a tax code rewrite and made it a top priority.

With Obama half way through his first term and a new election campaign looming, many see the next two years as a ground-laying phase, leaving legislation for a second term.

Here are some key questions and elements of the debate:

WHY ARE PEOPLE TALKING ABOUT TAX REFORM NOW?

The fledgling economic recovery and concerns about annual deficits topping $1 trillion have pushed a tax overhaul up the economic agenda. Many budget experts note that both individual and corporate taxpayers are spending more money each year to prepare taxes -- while the government is getting less efficient at collecting.

Among the loudest voices of complaint are from big corporations, who blast the top 35 percent marginal rate, the highest in the industrialized world. Many economists and Obama officials agree with their argument that the high rate makes the U.S. less attractive relative to its peers.