In the State of the Union, the President called for comprehensive tax reform: “So tonight, I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years…” He continued, “In fact, the best thing we could do on taxes for all Americans is to simplify the individual tax code. This will be a tough job, but members of both parties have expressed an interest in doing this, and I am prepared to join them.”

That was so 2011.

A lot must have changed in a year, because the 2012 State of the Union was about anything but tax simplification. Quite the opposite in fact. The President called for new tax expenditures (breaks) for companies to move operations back from overseas. And a new tax on multinationals that would offset a tax break for domestic companies. Also, if those domestic companies are manufacturers, they would get an even bigger break. But wait there’s more: that break would double if it was a high tech company making stuff here.

Phew. The President directed Congress to send him the tax reforms, and he would “sign them right away.” Maybe they will, after taking a few Excedrin to deal with a headache caused by trying to write legislation articulating the difference between high tech manufacturing and regular manufacturing.

And that’s not all: the President also proposed extending the tuition tax credit and expanding small business tax relief. Wait here’s something we’re behind: After “a century… It’s time to end the taxpayer giveaways to [the oil industry] that’s rarely been more profitable…” But he wants to turn around and “double down … [with] clean energy tax credits.” Oh, well there goes that revenue.

The problem is not that all of the policy goals are wrongheaded: no one in Congress is campaigning to make education more expensive or to reduce domestic manufacturing jobs. The problem is that too often policymakers find it more politically palatable to give up cash owed to the treasury to avoid writing checks. Whether it’s forgone revenue or increased spending, the impact on the deficit is pretty much the same. Ignoring this reality is the same kind of logic that would lead to you thinking that skipping the gym for a month would have a different impact on your waistline than eating a dozen donuts. In fact, in some ways new tax breaks are worse, because they add complexity to the code, create perceived imbalances, are rarely reviewed and are very hard to measure for effectiveness. And it is the most politically connected industries and popular causes that are the most likely to get and maintain tax breaks.

It is painfully clear that to deal with our enormous budget deficits and tackle the $15 trillion debt that is saddling our nation; we need an all of the above strategy. Yes, spending has to be tackled. Entitlements like Social Security and Medicare have to be reformed to be made more sustainable in the long-term. But we cannot ignore revenue. Slathering on new tax breaks, preferences, and loopholes with one hand, while trying to prune the breaks elsewhere and increase some rates is never going to work.

The last time a tax code thicket was cleaned out with a good burn was 1986. More than 25 years later we need a fire to sweep through the code and eliminate the underbrush of tax expenditures, breaks, and loopholes.

The Simpson-Bowles and Domenic-Rivlin commissions, the Senate Gang of Six, and a litany of legislators from both parties have all called for eliminating various tax breaks, while reducing the rates and consolidating brackets to create a simpler, flatter, and fairer tax system. It is an election year, but instead of both sides pandering to the electorate with a plethora of tax breaks, they should be working for fundamental reform.

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TCS Quote of the Week

“I see just a big fight…You can't even dismiss the little, itty-bitty ones. Every single one of those things, there's a group of people, it's their whole life's work tied up in this and they are going to lobby like heck.” – George Yin, Former Join Committee on Taxation Chief of Staff (2003-2005), On the challenge of reforming the federal tax code and exclusions. (REUTERS)