Barack Obama announced the establishment of a new panel to look at overhauling the existing tax code.  Former Fed Chair Paul Volcker will be in charge of the review, with the goal of closing loopholes, simplifying the law and generating more revenue.

Under Volcker, White House senior economic adviser to Obama Austan Goolsbee will be the staff director, and report back to Volcker.

Obama plans to ask Volcker, Goolsbee and the panel for a package of recommendations to be on his desk Dec. 4, which would leave enough time for decisions to be made and included as proposals in the White House budget for fiscal 2011, to be submitted to Congress in February 2010.

A little history.

Volcker served as Fed Chairman from 1979 to 1987 under Presidents Carter and Reagan, a time when inflation was running rampant leading Volcker to drive interest rates up to 20%; effectively choking off home-buying car purchases and other consumables.

Wages were driven down and corporate America was redefined through numerous strikes and high unemployment (over 11% in the early 80’s).  Arguably the economic mess, influenced by Volcker contributed to Carter’s defeat to Reagan, but interestingly enough, Reagan retained Volcker as Treasury Secretary throughout his presidency.

With striking irony, it was during this time period that the Democrats first bailed out the Chrysler Corporation as Carter provided loan guarantees in return for wage cuts by the UAW.

Fast forward to today.

With Volcker back in Washington, the game should seem familiar.  The Democratic President is in the process of bailing out the big three auto manufacturers while demanding wage concessions from the UAW.  In a round about way, Volcker transformed what was then a very dominant portion of America’s working class in to politically exploited labor group.

In addition it should come as no surprise that Obama touts Volcker as an ideal candidate for the “Economic Recovery Advisory Board”, considering the considerable amount of money (on the order of $2,500) Volcker contributed to Obama’s campaign.  It helps that Volcker’s historical decisions align well with Obama’s vision of “change” for the future.

Corner Office Comments

When I first read the headlines, I was elated.  Finally Obama was going to do something good for the country and simplify the tax code.  After paying $800 per year to have a professional prepare my taxes, resulting in nearly 150 pages of documents, you can understand why I’d be interested in this proposition.

After thinking about it though, Obama’s motive for revamping the tax code isn’t to make my life easier, it’s to bring in more money.  He really wants to close existing loopholes while sliding increased rates into the code, all under the guise of simplifying the code.

The fact that he brought Paul Volcker in to lead the team doesn’t bode well given Volcker’s experience raising interest rates (another suggestion that inflation is coming, with higher interest rates to follow).  In essence, it’s a match made in heaven: the guy who drove down wages through higher unemployment rates labor strikes in the auto and mining industry, teams up with the guy who strives to do the same, just on a much more grandiose scale.

I suspect that redefining the tax code will segue nicely with increasing interest and tax rates, while whitewashing the public into believing that it’s all part of his “hope and change” scheme… it’ll just require a lot of patience.

I’d like to see more proposals like the FairTax and the flat tax get more air time and be part of further discussion.  I particularly like the FairTax idea, which taxes consumption versus earnings.  More on the FairTax idea later…

Economics, Taxes FairTax, Flat Tax, Paul Volcker, tax code