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7 Big Economic Reforms Obama Is Ignoring

Rick Newman

During his State of the Union speech, President Barack Obama proudly declared he was prepared to wring the same amount of saving from Medicare reforms as recommended by his own fiscal commission back in 2010. What Obama didn't say is that his commission proposed dozens of other ideas he seems to have no interest in.

The Simpson-Bowles panel, which Obama chartered after Congress declined to establish its own fiscal commission, proposed 45 broad reforms, with elaborate specificity, meant to get Washington's spending under control. Its report is widely considered the most credible blueprint for what it will take to rein in the $16.5 trillion national debt. For that very reason, many of the steps it recommended would be deeply unpopular, and some downright painful.

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It's no surprise, then, that Obama steered clear of many measures recommended by his own commission when he outlined his vision for a second term. Here are seven notable reform ideas Obama seems to be taking a pass on:

Broadening the tax base. The Simpson-Bowles commission called for a tax reform plan that would close many loopholes, lower rates and require more people to pay, which in Washington is euphemistically referred to as "broadening the tax base." The idea isn't to punish low-income families who might slip below the payment threshold, but to give everybody a stake in the tax system and to reduce the impression that a significant portion of workers pay no taxes and freeload off those who do.

Obama did make a broad appeal for tax reform in his State of the Union address, but he mostly focused on closing loopholes for the wealthy, as well as raising their taxes. For that to happen, Republicans are sure to insist on closing other loopholes that allow lower-income workers to escape taxes altogether. Obama may not go for that.

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Ending middle-class giveaways. Among other things, the Simpson-Bowles commission called for scaling back the tax breaks for mortgage interest, employer-provided health insurance and retirement funding that help raise living standards for many middle class families. While noting that these are important incentives that ought to be maintained in some form, the commission also made numerous recommendations that would hit middle-class wallets, because the national debt is too big to fix any other way. Not surprisingly, Obama declined to kick off his second term by proposing higher costs on the middle class.

Raising the gas tax by 15 cents per gallon. The commission made this recommendation so that spending on roads, bridges and other transportation priorities could be paid for by current revenue instead of borrowed money that adds to the national debt. Ha ha. Nobody expects any sane politician to tell motorists he wants to raise the gas tax.

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More out-of-pocket spending by Medicare recipients. This idea is meant to give seniors a stake in the cost of their medical care, so they have an incentive to reduce spending on unnecessary procedures. Many economists think that would help bring down overall medical costs, which are the single biggest threat to Washington's solvency. While saying he's open to modest reductions in Medicare spending, Obama is mainly seeking those savings from administrative cutbacks, while positioning himself as a protector of seniors and their wallets.

A higher retirement age for Social Security and Medicare. Simpson-Bowles suggested indexing the retirement age to life expectancy, which would raise the normal Social Security and Medicare eligibility age by about one year every 24 years. That type of change could end up as part of a compromise on entitlement reform, but Obama's opening bid is to leave the retirement age where it is now, capped at 67.

Malpractice reform. One factor pushing up healthcare costs is the lavish payouts associated with lawsuits and a variety of things caregivers do to protect against them, which is why the Simpson-Bowles report recommended new laws to limit the impact of lawsuits. But trial lawyers are a core Democratic constituency and Obama has said virtually nothing about malpractice reform.

Many spending cuts. Obama's fiscal commission called for deep cuts in virtually all types of federal programs, including defense as well as discretionary programs that fund everything from student loans to the arts to aviation safety. It also proposed a "cut and invest" committee that would identify the least productive items in the federal budget and redirect that spending to higher-priority programs and deficit reduction.

Obama has acknowledged the need to trim spending, but he has also put most of the emphasis on a "balanced approach" that also includes new types of spending, and higher taxes on the wealthy. Getting that balance right will probably be the consuming battle of Obama's second term.

Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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