Senators Wyden and Gregg Climb Aboard the Tax Reform Bandwagon
Tax reform proposals are busting out all over. Today, senators Ron Wyden (D-OR.) and Judd Gregg (R-NH) rolled out their version of a simplified, relatively low-rate individual and business tax system.
The plan retains the basic structure of the income tax and has the feel of the landmark 1986 tax reform. Yet, it tilts towards a consumption tax for businesses. As in ‘86, the goal seems to be revenue-neutral reform, rather than an attempt to raise more revenue by restructuring the Tax Code. Depending on your point of view, this could be either a missed opportunity or a sensible idea.
One downside: While the tax cuts in the plan are out there for all to see, the offsetting revenue increases are less explicit. Thus, there is at least some question about whether the plan would generate the same amount of revenue as current tax policy. Giving away tax dollars may be a nice way to attract public support, but it doesn’t make a lot of fiscal sense in an era of $1 trillion–plus deficits.
How would the Wyden-Gregg plan work? Individuals would face three tax brackets—15 percent, 25 percent and 35 percent. The Alternative Minimum Tax would be repealed. The proposal would encourage more people to take the standard deduction by nearly tripling its size, and filing would easy for those who chose this route.
However, the proposal would retain a number of popular credits and deductions for itemizers. Among those Wyden and Gregg would keep: deductions for mortgage interest and charitable gifts, and the child credit, earned income credit, and dependent care credit. The plan would enhance and somewhat simplify retirement savings incentives. Investors could exclude 35 percent of their capital gains from tax.
On the business side, Wyden and Gregg would reduce the corporate rate to 24 percent and eliminate unidentified targeted business tax breaks. Small businesses could immediately write off all inventory and equipment costs. Companies could deduct only part of the interest they pay, a change that could reduce the current bias that favors borrowing rather than equity finance.
The senators’ plan could be revenue neutral over 10 years, according to a rough estimate by the Congressional Research Service (the usual arbiter of these things, the Joint Committee on Taxation, did not score the plan). However, CRS warned the proposal would lose about $230 billion over 10 years unless Congress eliminated a bundle of business tax breaks. Wyden and Gregg said they favor additional loophole closers but didn’t identify them.
While the details of this plan are interesting, what’s really important is the growing number of lawmakers who are thinking about tax reform. Representative Paul Ryan (R-WI.) has introduced a reform plan (his business provisions are somewhat similar to Wyden-Gregg). House Ways & Means Committee Chair Charles Rangel (D-NY) put a plan on the table a few years ago that was also built around lower rates and a broader base. Senate Finance Committee Chair Max Baucus (D-MT) periodically expresses his interest in reform. Taxes will inevitably be considered by President Obama’s deficit commission. And, of course, we patiently await a report from the Administration’s tax reform panel.
Slowly, but surely, tax reform is creeping into the public debate. There is a long way to go, but the issue is making the transition from academics and think-tankers like us at TPC to the world of politics.
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Wyden and Gregg would reduce the corporate rate to 24
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And yet still no one mentions a VAT and the elimination of filing requirements for most people. Sad, as it would play right into the Tea Party members agenda (although not to the agenda of FreedomWorks leader Dick Armey, who wants a flat tax payable without withholding to make it as painful as possible).
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I commend Senators Ron Wyden & Judd Gregg for their tax proposal and plan. It is really a low rate and simplified one for individuals and on the business sector. Thank you for this informative post, it is important for people to be updated with valuable national issues such as this. Please keep posting.
Tax upon tax upon taxes. OMG! This issue is and will never be closed. Its just so sad that the most taxed people are those that does not earn big. I just hope they will be able to cut down taxes.
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People should read this article to enlighten them what’s going on in the country. Tax is the main source to sustain the country towards its prosperity and progress.
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Because of this experience I am very leery to hand over health care to the government. Dr. Phil once said about relationships, to look at the past is a good indicator of what the future relationship would be.
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Thanks for again pointing out that if it seems to good to be true, it is. However, I think you should give Senator Wyden more credit because in his “Healthy Americans Act”, he does call for the move to tax employer provided health benefits. This bwin was another bipartisan bill co-authored by Senator Bob Bennett of Utah. According to an article in today’s NY Times, Senator Gregg recently spoke favorably of the Wyden/Bennett bill, so there may be hope that they would agree to propose eliminating the health insurance exemption.
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What can you say, every tax reform proposal I have read it is confusing, and at the end you really do not know how it would work and if it would help anybody. Is like when voting, you really need to dig to the “propositions” or at the end you will mistakenly vote for the one you do not agree with!
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The fed reserve is govt within the govt. Its self-serving interests are at odd with the best interests of the citizens.Why not have a wealth tax up to 90% of any funds (stocks, bonds, cash real proprety in excess of $10 million. That no one would be come “rich”.
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this is just down right sad..
high tax rates really help no one in the end, it has been tried and proven in the past.
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I really want to see a more progressive system. Lets see…
Wyden and Gregg would reduce the corporate rate to 24
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I believe there should be a wealth tax. At the moment the only wealth being taxed is the property tax while cash, stocks, pariuri sportive and bonds are not subject to any kind of wealth tax.Very interesting and well written blog post.Bookmarked and tweeted to 2000 followers.
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i AGREE that Increasing the income taxes is not the only to reduce the national debt.RRSP
I totally agree. Rich people spend money to hire other people who benefit greatly from those who have money to spend. It's silly to have the government steal their money to distribute as the government sees fit. Just look at the waste with the stimulus money.
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Why do people hate people who make money? I don't understand the mentality of hating rich people. Get off your a$$ and make some money, you won't be in such a hurry for people to take it from you. This government is out of control, exempting themselves from the rules – even the health care reform bill shoved down the people's throats doesn't apply to congress members.
I'm going to go drink some more wine from my wine glasses.
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That rate probably triggers a Laffer effect. With VATs collecting most income, you can assume the VAT bite as an addition to a lower personal tax rate. If at the same time you encourage the sale of family legacy holdings to employees by leaving such things tax exempt while also diverting some retirement savings toward employee (rather than index fund) ownership, eventually you won't have CEOs and trust fund brats hoarding wealth and the associated power. Taking the money was never really the issue, its what is done with it that is problematic. If wealth no longer buys power, I could care less about people's collections of green paper.USP labs Prime
While tax reform does seem to have some very strong benefits, I believe our largest tax problems relate to how this tax revenue is being spent.
I suggest: forget the a VAT. Instead reduce but reform income taxes, eliminate regressive sales, property and social security taxes, eliminate capital gains taxes, eliminate estate taxes and ADD A WEALTH TAX of 1-2% on net worths over about $500,000.
The wealth tax would amount to a 20% tax on investment returns, making it on par with taxes on work income. Right now work is taxed at 5-10-fold rates greater than investment returns. For the very very rich (Warren Buffett 2006) investment return are taxed at rates 200-fold less than work income
A Wealth Tax would:
1 -make taxes more proportional to ability to pay
2- make taxes proportion to the extent a household has profited from economic infrastructure provided by governments
3- reverses tax advantages that have resulted in the top 1% owning 40% of the nation's wealth [basic economic fairness and less inequality are associated with reduction of numerous social ills (http://www.equalitytrust.org.uk/why)]
4- reduce recessions caused by bubbles caused by excessive investment caused by favored tax treatment of investment and wealth condensation
5- strengthen the economy
6- create a rising tide that raises all boats
7- simplify the tax system
A VAT is far from progressive on income or wealth. The wealthy spend (and so under a VAT would be taxed on) a tiny fraction of their income or wealth. The poor and middle class spend nearly all of their and sometimes more than than their income and wealth.
See more at http://fairsharetaxes.org
The problems with the VAT are if passed will be in addition to all of the other taxes also it will be a hidden tax that the free people don't know they are paying.
I hink there should be a wealth tax. At the moment the only wealth being taxed is the property tax while cash, stocks, pariuri sportive and bonds are not subject to any kind of wealth tax. Why do you suppose that is?
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i wonder how this great free enterprise country would be if noone wanted to become wealthy and create jobs for people who didnt have the ambition to succeed ?
Talking about a new tax system is just something to do with either changing the way we say how we are robbed out of our money. Policy-makers always think of a new way to “ease” out our burden but never even think of lowering our VAT or some aspects of our taxes. The government promises so much with these promises often left underachieved. As an example, look at our health system, we would there be people dying with lack of lifetime health care from the government? Are they going to leave their eyes blinded but their bureaucracy and ill lack of interest?
Unfortunately the VAT is a hidden tax that would only become part of the cost and the tax payer would not realize how much taxes he is paying. It also would be in addition to the income tax. Like in the past when the congress and president cannot control their spending they would just increase the taxes (all) again. A flat bracket tax would be better and no one would be completely free of taxes. If a person only gets from the tax system yes they want to get all of the benies that they can be cause IT DOSE NOT COST THEM ANYTHING.
Why not have a wealth tax up to 90% of any funds (stocks, bonds, cash real proprety in excess of $10 million. That no one would be come “rich”.
I second that! What a thief! Support all – not just yourself.
I also think there should be a wealth tax. Right now the only wealth being taxed is the property tax (where most of the middle class has the bulk of its net worth)while cash, stocks, and bonds are not subject to any kind of wealth tax (where the insanely rich have most of their mac data recovery net worth). Why do you suppose that is?
Is is possible to eliminate the VAT?
Thanks for sharing
There's always somebody who is paid too much, and taxed too little – and it's always somebody else! The federal government or federalism has no business in this kind of business.
What can you say, every tax reform proposal I have read it is confusing, and at the end you really do not know how it would work and if it would help anybody. Is like when voting, you really need to dig to the “propositions” or at the end you will mistakenly vote for the one you do not agree with!
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This ultimately is why I am a liberal: my principal goal from government is efficiency. I want my government to be good at maximizing human utility. If that means the market should be brought to bear in many cases, then by all means let the market set prices. When in other issues the market fails, I want the government to step in and nudge things in the right direction. Draconian taxes hurt the economy, but defaults on debt or huge inflation would hurt a lot worse, so lets find a way to raise taxes that hamper economic growth as little as possible. Political dogmatism doesn't interest me, I just want to be right.
http://www.theinductive.com/blog/2010/4/12/liberalism-after-liberalism.html
And yet still no one mentions a VAT and the elimination of filing requirements for most people. Sad, as it would play right into the Tea Party members agenda (although not to the agenda of FreedomWorks leader Dick Armey, who wants a flat tax payable without withholding to make it as painful as possible).mac data recovery
Increasing the income taxes is not the only to reduce the national debt. The government like a company or a family when it runs into debt has to lower expenses. Reducing expenditures,though, is not politically palatable.
Expenses can be reduced by eliminating certain programs that have little or no benefit as well as all of the “pet” projects that each of the congressmen have. Another is by stopping people from retiring early and drawing their salary for the next 40+years. Double dipping should be stopped. Government employees should not be able to draw a average salary greater than their civilian counterparts.
The VAT tax was mentioned in one of the comments. The problems with the VAT are if passed will be in addition to all of the other taxes also it will be a hidden tax that the people don't know they are paying. It will not be listed on the cash register receipt. I have compared prices of an item in say Canada or England and have hound that the price is much higher than we pay here in the US.
So cut expenditures, help people to be self reliant,make business climate that will make success more likely.
The Alternative Minimum Tax would be repealed. The proposal would encourage more people to take the standard deduction by nearly tripling its size, and filing would easy for those who chose this route.
The fed reserve is govt within the govt. Its self-serving interests are at odd with the best interests of the citizens.
THE FED MUST BE DISMANTLED AT ALL COSTS. GEITNER IS A CRIMINAL AND MUST BE PROSECUTED UNDER RICO STATUTES
That rate probably triggers a Laffer effect. With VATs collecting most income, you can assume the VAT bite as an addition to a lower personal tax rate. If at the same time you encourage the sale of family legacy holdings to employees by leaving such things tax exempt while also diverting some retirement savings toward employee (rather than index fund) ownership, eventually you won't have CEOs and trust fund brats hoarding wealth and the associated power. Taking the money was never really the issue, its what is done with it that is problematic. If wealth no longer buys power, I could care less about people's collections of green paper.
If by that you mean that America from the 1930s all the way through the 70s was un-American, when the top income tax bracket ranged from 70% to over 90%, then yes, it's un-American.
Tax rates of 50%, 60% and 70% is simply un-American…you make me sick.
I still want to see a more progressive system that has a top rate of at least 50% for income from any source above 1 million, 60% for income over 5 million, and 70% for income over 10 million. Why is there such resistance to the insanely rich paying a bit more of their income in taxes?
I also think there should be a wealth tax. Right now the only wealth being taxed is the property tax (where most of the middle class has the bulk of its net worth)while cash, stocks, and bonds are not subject to any kind of wealth tax (where the insanely rich have most of their net worth). Why do you suppose that is?
And yet still no one mentions a VAT and the elimination of filing requirements for most people. Sad, as it would play right into the Tea Party members agenda (although not to the agenda of FreedomWorks leader Dick Armey, who wants a flat tax payable without withholding to make it as painful as possible).