Yesterday, Senator Max Baucus (D-MT) and Representative Dave Camp (R-MI) kicked off their summer tour of the country in order to bring the tax reform debate to the American public. The tour started in St. Paul, Minnesota, and two former Minnesota Congressmen are excited that tax reform could be a real possibility.
In 2010 and 2011, the federal government "spent" nearly $50 billion in revenue on energy tax expenditures. But are these provisions actually achieving their stated goals? A new government report says no.
Among developed countries the US is unique in taxes in a number of different ways. One claim to fame is the fact that the U.S. now has the highest marginal corporate tax rate. The current marginal rate in the U.S. remains at 35 percent while the average marginal rate of the OECD countries, excluding the U.S., is a full 12 percentage points lower at 23 percent. At the same time, the revenue collected by the corporate tax is low by international standards due to the number of corporate tax provisions which make the effective rate not nearly as high.
According to press reports today, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) are about to take a very encouraging step on tax reform this morning, releasing a letter to their colleagues to inform them that the Committee will follow the Fiscal Commission's "Zero Plan" approach to tax reform this year.
The United States has the highest statutory corporate tax rate in the developed world, but substantial revenues are forgone through a variety of tax loopholes and provisions. Responsible corporate tax reform could lower statutory rates while simplifying the tax code and eliminating these loopholes.
Tax expenditures in theory promote specific policy goals by subsidizing that behavior through tax benefits. However, in comprehensive tax reform, transition issues in changing tax expenditures can be an issue -- it certainly consumed a lot of lawmakers' thought and energy in the Tax Reform Act of 1986. Making sudden changes to parts of the tax code could be disruptive to sectors in the economy that would be most affected by tax expenditure reductions or other changes.
Last week, the Senate Finance Committee released a seventh report in a series of papers examining the federal tax code and options for comprehensive tax reform reform.
The CBO released a paper today analyzing the distributional impact of major tax expenditures on the individual side of the tax code. Considering the tax reform efforts underway, the report is particularly timely as lawmakers take a look at the myraid of preferences in the law. The new analysis estimates that the 10 largest tax expenditures will cost the federal government $900 billion in revenue in fiscal year 2013 alone and $12 trillion from 2014-2023.
Today, in a Project Syndicate piece, Laura Tyson examines the state of retirement saving in the U.S. and argues that many retirement saving tax expenditures are failing to achieve their goals. Many tax expenditures are designed to encourage actions that many lawmakers would argue are useful, like charitable donations and homeownership.
Tax reform has many moving pieces to it and many questions that need to be answered. One question is whether the two pieces should be handled together, separately, or whether lawmakers should only do one or the other.