The tax reform plan is explained as follows: "The President is calling on Congress to undertake comprehensive tax reform that produces a system which is fairer, has fewer loopholes, less complexity, and is not rigged in favor of those who can afford lawyers and accountants to game it.
"He believes we cannot afford to make our deficit problem worse by extending the Bush tax cuts for the wealthiest Americans.
"He also supports efforts to build on the Fiscal Commission’s goal of reducing tax expenditures so that there is enough savings to both lower rates and lower the deficit. Reform should be designed to ask more of those who can afford it while protecting the middle class and promoting economic growth.
"In addition, as he explained in the State of the Union, the President is continuing his effort to reform our outdated corporate tax code to enhance our economic competitiveness and encourage investment in the United States. By eliminating loopholes, reducing distortions and leveling the playing field in our corporate tax code, we can use the savings to lower the corporate tax rate for the first time in 25 years without adding to the deficit."
A January 2011 CBO report on the budget shows the deficit as $1.4 trillion for 2011. In 2013, assuming tax cuts are allowed to expire at the end of 2012, the deficit is $704 billion. Here is the CBO chart:
The deficit will be higher if any of the 2001/2003 tax cuts are extended (I understand that some will believe it will be lower because tax cuts will generate new revenue - see a later post on this one). So, it is always a good idea to look at the fine print for any deficit or revenues table for 2013 and beyond - is it based on current law (tax cuts expire at end of 2012) or is there an assumption that any or all are extended.
Back to the president's tax reform. What does he propose to reduce in terms of tax expenditures? The co-chairs of the Deficit Commission proposed removing all of them (final report, page 29)! President Obama's revenue proposals for FY 2012 include extending and creating some tax expenditures (in addition to cutting some, such as the Section 199 manufacturing deduction and some oil and gas incentives).
What will he cut for the group of taxpayers that get the bulk of the benefit from tax expenditures - individuals? (See 2/11/11 post.) I think he'll need to cut more than indicated in his FY2012 revenue proposals to achieve any serious reduction in the deficit and debt.
What tax reforms would you propose to reduce the deficit?
