The draft (in the form of a Powerpoint presentation) starts with ten "guiding principles and values." At least two of them refer to tax changes - #7 on cutting spending includes spending in the tax law ("tax expenditures") and #9 specifically refers to tax reform. They highlight that their draft proposal "reduces tax rates, abolishes the AMT, and cuts backdoor spending in the tax code." For the area of tax reform, the co-chairs present three tax reform options.
The 10 principles and values are:
- We have a patriotic duty to come together on a plan that will make America better off tomorrow than it is today.
- The Problem Is Real –the Solution Is Painful –There’s No Easy Way Out –Everything Must Be On the Table –and Washington Must Lead
- It Is Cruelly Wrong to Make Promises We Can’t Keep
- Don’t Disrupt a Fragile Economic Recovery
- Protect the Truly Disadvantaged
- Cut and Invest to Promote Economic Growth and Keep America Competitive
- Cut Spending We Simply Can’t Afford, Wherever We Find It
- Demand Productivity and Effectiveness
- Reform and Simplify the Tax Code
- Keep America Sound Over the Long Run
The 3 tax reform options are:
1. The Zero Plan - highlights per the co-chairs:
- Consolidate the tax code into three individual rates and one corporate rate
- Eliminate the AMT, Pease, and PEP
- Eliminate all $1.1 trillion of tax expenditures
- Dedicate a portion of savings to deficit reduction and apply the rest to reduce all marginal tax rates
- Add back in any desired tax expenditures, and pay for them by increasing one or all of the rates from their zero-expenditure low
That really does say "eliminate all $1.1 trillion of tax expenditures"! The co-chairs suggest that doing so would allow the three individual rates to be 8%, 14% and 23% with a corporate rate of 26%. If the child credit and EITC were kept, the rates would be 9%, 15% and 24%.
2. Wyden-Gregg Style Reform
I have a brief summary of this - here.
3. Tax Reform Trigger - described as follows:
- Call on Finance and Ways & Means Committees and Treasury to develop and enact comprehensive tax reform by end of 2012
- Put in place across-the-board “haircut” for itemized deductions, employer health exclusion, and general business credits that would take effect in 2013 if reform is not yet enacted
- Haircut would limit proportion of deductions and exclusions individuals could take to around 85%* in 2015. Similarly, corporations would only take some proportion of their general business credits
- Set haircut to increase over time until tax reform is enacted
I am impressed at the boldness of the proposals as a good starting point for serious discussion of serious budget - spending and tax, issues. For example, noting what the tax rates could be with elimination of all tax expenditures should bring sunshine to the types of spending in the tax law and whether it is really needed. Elimination of all or many tax expenditures will make the tax law simpler and allow for lower tax rates.
I still need to read more and would like to see something beyond the bullet-point Powerpoint, but I think this is a good start that they are serious about highlighting that we need serious proposals to address serious problems!
Of course, it remains to be seen if the commission will be able to reach the necessary 14 out of 18 votes for consensus. But if not, the proposal of the co-chairs should be used by President Obama and the 112th Congress to get moving to resolve issues sooner rather than later because they just get harder to fix the longer we let them stay.
What do you think?