On Tuesday, Senator Mike Lee (R-UT) presented his Family Fairness and Opportunity Tax Reform Act, which will be introduced in the coming days.
One area of controversy in the last election was the percentage of American households that pay no federal income tax, often cited as 47 percent. The number actually peaked at 50 percent in 2009, but that proportion will fall to 43 percent this year.
The broad outlines of tax reform have always been clear. Lawmakers trim or eliminate certain tax expenditures and use some or all of the additional revenue to lower tax rates. As a general concept, most economists can agree that this approach of broadening the tax base and lowering rates will have positive economic benefits, reduce economic distortions from our tax code, and put the country on a more secure fiscal footing.
Before leaving for August recess, Senators Jack Reed (D-RI) and Richard Blumenthal (D-CT) introduced S. 1476, which would end the ability of businesses to deduct any executive salaries over $1 million. Currently, regular salaries over $1 million cannot be deducted for the five highest-paid employees, but performance-based incentives are fully deductible, per section 162(m) of the tax code.
As Senate Finance Committee Chairman Max Baucus (D-MT) and House Ways & Means Chairman Dave Camp (R-MI) continue their cross-country tax reform roadshow, they will hear a wide range of opinions on how to reform our federal tax code.
John Oliver, interim host of The Daily Show with John Stewart, opened last night's program with an update on tax reform. The segment is hilarious, but Oliver's analysis is also spot on -- special interests and political infighting are holding up a reform process that is long overdue. As we have written before, tax reform is really hard, but well worth the effort.
Update: The Tax Policy Center has released a distributional analysis of the reducing the top individual and corporate rates to 25 percent and eliminating the AMT.