WSJ ignores administration's plan to close “tax gap” in knock on Obama's handling of deficit

Arguing that President Obama “needs a believable business plan” for the deficit, Wall Street Journal economics editor David Wessel falsely claimed that the President's Economic Recovery Advisory Board (PERAB) “has been told to move the tax burden around, not to raise more money.” In fact, in announcing the board's Task Force on Tax Reform, Peter Orszag emphasized that the task force would be charged with finding “ways of being even more aggressive on reducing the tax gap” -- the difference between the amount of taxes that are owed and the amount that are voluntarily paid on time -- which Orszag said could potentially increase revenue by $300 billion a year or more.

Wessel claims PERAB “has been told to move the tax burden around, not to raise more money”

From Wessel's August 27 column, titled “Obama Can No Longer Pass the Buck on Economy” :

“Blame Bush” is a nice bumper sticker, but not very comforting to Americans worried about jobs, wages, home prices and retirement accounts. The latest Wall Street Journal/NBC News poll shows that approval of Mr. Obama's economic policies is falling as the economy heals; approval of his foreign policies remains stronger. Imagine what the public would be saying if the economy were getting worse. From now on, the public, the press and the markets increasingly will judge on results.

[...]

On the long-run deficit, Mr. Obama needs a believable business plan. He needs to convince Americans and their creditors that this country isn't becoming the world's largest subprime borrower.

The deficit can't be fixed without restraining health-care costs, as the president reminds us almost daily. But even if Mr. Obama sticks to his objectives and persuades Congress to pass what is likely to be called the Edward M. Kennedy Health Care For All Act, he will have done nothing to reduce the $9 trillion in borrowing that budget director Peter Orszag projects for the next 10 years.

On taxes, Paul Volcker's President's Economic Recovery Advisory Board has been assigned to rethink the tax code, but has been told to move the tax burden around, not to raise more money. And the president's spokesmen, if not all his economic advisers, insist he won't raise taxes on families making less than $250,000 a year.

Mr. Orszag promises a deficit-reducing plan -- but not until the president's next budget in February. He must be hoping America's creditors will be patient and that the president's health initiative passes this year. If it flops, any new belt-tightening proposals he makes will lack credibility; no one will believe he can get Congress to pass them short of a crisis that can be blamed on the deficit.

In fact, the Task Force on Tax Reform has been charged with reducing the tax gap, which could raise “hundreds of billions of dollars” in revenue

In announcing the task force, Orszag emphasized the importance of “reducing the tax gap.” During the March 25 conference call in which he announced the formation of the PERAB Task Force on Tax Reform, Orszag explained, “The Task Force on Tax Reform that will be formed by the [Paul] Volcker board will be examining ways of being even more aggressive on reducing the tax gap.” From Orszag's conference call:

DIRECTOR ORSZAG: And as -- as we -- and we have time to figure it out, we are also forming and tasking the Volcker board, the PERAB, with three tasks: one is tax simplification; the second is closing tax loopholes and reducing tax evasion; and the third is reducing corporate welfare. And it's worth noting that with regard to that first category, one of the key things that the Volcker board will be examining is ways of unifying, streamlining, making more consistent the various credits that are out there: Making Work Pay, the Earned Income Tax Credit, the Child Tax Credit, and what have you. And in addition, with regard to the tax gap, there are hundreds of billions of dollars in uncollected taxes each year.

The Task Force on Tax Reform that will be formed by the Volcker board will be examining ways of being even more aggressive on reducing the tax gap, which could provide funding for tax provisions, including an extension of the Making Work Pay tax credit. [Orszag conference call, 3/25/08]

Orszag estimated that tax gap amounts to $300 billion or more. Orszag explained during the conference call, “The tax gap announced is something like $300 billion a year. We had, in the budget, some proposals to start to reduce that, but there -- I think there's widespread concern, frankly, that perhaps even this $300 billion estimate is too low because of the complexity of some of the transactions that are involved” :

Q Yes, Mr. Orszag, thanks for doing this. On the Volcker board, can you talk a little bit more about the tax gap? How many billions do you expect might be raised, or can you give a range? I know there's been any number of studies on this.

And second, when will this Volcker board actually be named or announced?

DIRECTOR ORSZAG: Okay, so first with regard to the tax gap. The tax gap announced is something like $300 billion a year. We had, in the budget, some proposals to start to reduce that, but there -- I think there's widespread concern, frankly, that perhaps even this $300 billion estimate is too low because of the complexity of some of the transactions that are involved, especially involving international transactions and transfer pricing and a whole variety of other topics. So I don't want to give you a precise quantitative estimate. I do want to say $300 billion a year or more is a lot of money, and we are interested in being as aggressive as possible in trying to reduce that number. And that's something that I know Chairman [Max] Baucus and Chairman [Charlie] Rangel are also very keen on reducing. [Orszag conference call, 3/25/08]

Orszag acknowledged, “We don't have any revenue target for the task force,” but immediately noted that the work of the task force would likely increase revenue

After acknowledging the lack of a “revenue target,” Orszag noted that the task force “would only point to increased revenue if we did a better job of collecting the taxes that were owed.” During the conference call, Orszag was asked, "[W]ill there be a goal of raising additional revenue, or you're just leaving it completely up to Volcker and company?" Orszag responded, “We don't have any revenue target for the task force,” but moments later explained, "[W]ith regard to the tax gap, I don't think anyone is proposing increasing it. So that would only -- especially on the tax gap, that would only point to increased revenue if we did a better job of collecting the taxes that were owed."

Q Hi, Peter. Thanks for joining us this morning. Two questions, both are related to the task force. One is, could you be clear -- a little clearer, do you intend to raise revenue only through enforcement of the tax gap, or do you also intend to raise revenue from tax simplification and the review of the corporate structure?

[...]

DIRECTOR ORSZAG: With regard to the task force, the only constraints on its activities are that there will be no tax increases during 2009 or 2010, and the proposals should not raise taxes on American families making less than $250,000.

So beyond those two constraints, the task force is open to consider options of any sort that it sees fit.

Q But will there be a goal of raising additional revenue, or you're just leaving it completely up to Volcker and company?

DIRECTOR ORSZAG: We don't have any revenue target for the task force, but again, I think there's been a bunch of academic thinking on streamlining the existing credit, and it would be useful to have a more fully fleshed-out set of proposals on that. Again, with regard to the tax gap, I don't think anyone is proposing increasing it. So that would only -- especially on the tax gap, that would only point to increased revenue if we did a better job of collecting the taxes that were owed. [Orszag conference call, 3/25/08]