When we talk about tax reform which lowers the rate and broadens the base, the base-broadening portion of the equation usally focuses on tax expenditures. These deductions, exclusions, credits, and special rates are considered a departure from the normal tax code, and so a number of proposals have focused on reducing or eliminating them.
Today, the third forum of the "Strengthening of America—Our Children's Future" series was held in New York City on "The Challenges of Pro-Growth Tax Reform." Commenting on taxes as well as our unsustainable debt path were two panels; the first featuring notable economists Martin Feldstein and Lawrence Summers, while the second made up of business leaders—Honeywell CEO and Fiscal Commission member David Cote, CEO of SEI and Chairma
Last week, we featured a piece by CRFB Senior Policy Director Marc Goldwein discussing one option to reduce tax rates while maintaining progressitivity and raising $1 trillion in revenue: eliminating the special rates for capital gains along with other deductions. In theory, a lower tax on capital gains might be preferred in order to incentivize savings.
Yesterday, the House Ways and Means Committee and te Senate Finance Committee held a joint hearing on tax reform and the tax treatment of capital gains. Base broadening tax reform with the payoff of lower rates is one of the key components of both the Simpson-Bowles and Domenici-Rivlin plans. But in order to get the lower rates in a fiscally responsible way, everything must be on the table, and that includes capital gains.
In today's Financial Times, former chair of the Council of Economic Advisors durign President Clinton's Administration and CRFB board member Laura Tyson writes that tax reform represents a deficit reduction opportunity that both parties can agree on.
Reports today about the Republican Party's platform committee yields some good news and bad news for tax reform. First, the good news. The Wall Street Journal reports that the platform committee rejected an amendment that would call for no changes to be made to the mortgage interest deduction.
Not surprisingly, the policy world has been less than kind to a proposal to exempt Olympic winnings from taxation. After the proposal gained the support the chair of the Ways and Means Committee Dave Camp (R-MI) and President Obama, we satirically speculated the possible reasoning behind the exemption, namely to push those fourth place finishers onto the medal stand with some tax motivation.
As Congress heads toward another partisan showdown over the fiscal cliff, it is important to remember that there are plans that have received bipartisan support from current and former members of Congress and experts from both political parties. Just check out CRFB's comparison grid of fiscal plans. The plan put forward by Al Simpson and Erskine Bowles, for instance, was supported by a bipartisan supermajority of 11 out of the 18 Commission members, including four current and two former members of Congress, divided evenly between the parties.
The Senate Finance Committee will hold a mark-up of the Family and Business Tax Cut Certainty Act tomorrow at 10 am. The Act would retroactively extend the Alternative Minimum Tax patch and many temporary "tax extenders" through 2012 and extend just the extenders through 2013.
Often when tax reform is discussed these days, policymakers are gleeful to detail the ways in which they will cut tax rates or otherwise lower tax burdens under the current system, but much less forthcoming about how they will otherwise raise taxes to meet a certain revenue target (see here, for example).