Never mind the controversy over extending the Bush tax cuts. I think the much more intriguing development regarding taxes was President Obama's proposal to simplify the tax code. The knee jerk reaction from opposition politicians and pundits may be "What's he really up to?" The better approach is "Let's do it!"
The President has proposed just 3 tax rates ranging from around 8% to 24% as well as a cut in the corporate tax rate. This would be offset by eliminating deductions and loopholes, including the sacred cow; mortgage interest deduction. I think that's a giant step in the right direction.
The mortgage interest deduction, like so many other deductions, credits and exemptions, is designed to short circuit market forces and influence behavior. This is a tactic that true free market proponents should oppose anyway. The mortgage interest deduction is based on the flawed premise that everyone should own a home. Furthermore, it doesn't encourage home ownership, it simply encourages mortgages. After all, once your mortgage is paid off, you no longer get the deduction. Will doing away with the deduction hurt home prices? Probably. Homes values will be based on a home's value, rather than on a combination of the value of the home and the value of a tax deduction. That's not a bad thing in the long run.
I would propose a new deduction however, for medical expenses. This should be a straightforward deduction and not some convoluted scheme based on a qualified account with restricted access. This could open a whole new field for lenders. If you have to take out a 20 year loan to pay for your surgery, at least you can take a tax deduction for the payments - interest and principal.
I would stand firm against any form of consumption tax whether it be on just gas or broader, unless it completely replaces every other tax. Even then, I would wait for a constitutional amendment forbidding the return of the income and payroll taxes.
The average American doesn't have the time or the resources to wade through our current 10,000+ page monstrosity of a tax code looking for exemptions, loopholes and credits. Free market proponents should applaud a tax system that doesn't attempt to influence where, when and how you direct your resources. The government's role is to be referee, not chaperon. Imagine what might happen to productivity if big business made investment decisions based on what consumers want and need rather than on what the government would like them to blow money on.
I'm willing to give the President the benefit of the doubt and assume he has determined that the American people aren't interested in a care-taker government and has decided to change course. Regardless of what may or may not be going on in his head or in backroom discussions with advisers, he has tossed a ball to limited government proponents. Take it and run with it. Never mind who might get the credit or benefit politically. The only way it results in a second term for President Obama is if the U.S. prospers as a result. Is that so bad? Do the right thing. You might be surprised at the results.