Debt ceiling and tax changes

The House passed a debt ceiling bill late August 1 (amendment to S. 325) by a vote of 269-161.* The Senate if to vote on August 2. The word "tax" doesn't show up in the 74-page amendment although the word "revenue" is used several times. The amendment calls for creation of a 12-member Joint Select Committee on Deficit Reduction that is to find ways to reduce the budget deficit by at least $1.5 trillion for 2012 to 2021.

Tax law changes should be part of the plan of the Select Committee. There are several tax deductions, exclusions and credits that do not need to be in the tax law and result in reduced revenue, and make the tax system more complex and inequitable. I've written about many of these in prior posts. They could include:

- Reduce the home mortgage interest deduction to only allow for interest on a principal residence with the debt capped at $600,000.
- Removal of deductions and credits for higher education and instead use part of the savings to fund Pell Grants for those who truly need financial assistance for college.
- Make 10% of employer-provided health insurance benefits taxable and gradually increase this to perhaps 20%. I think it really should be higher, but the system is not perfect and may cause some people to drop coverage which increases costs for others. The math will need to be explained to people so they see that it is still a good deal. For example, if your employer pays $10,000 of your health care coverage, $1,000 of that would be included in your income. If you are in a 20% tax bracket, the cost to you is $200. Still a good deal for $10,000 of health insurance benefits!
- Remove the child credit and use part of the savings to increase the standard deduction amount.
- Let the 2001/2003 tax cuts expire. Once the debt is paid down, consider modifying the upper rates to have brackets of over $500,000 and over $1 million (so reducing when the 35% rate comes into play).

What do you think could be changed in our tax law to help reduce continual deficits and help pay down the debt?

* For more on the amendment, see:
- White House fact sheet
- Wall Street Journal, "Uneasy House OK's Debt Deal", 8/2/11
- PwC news release