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.
Updated 8/2/2013: Newly released submissions to the Finance Committee have been added.
The deadline for Senators to make their arguments for what tax expenditures should be included in Sens. Max Baucus (D-MT) and Orrin Hatch’s (R-UT) “blank slate” approach to tax reform has now come and gone. Baucus and Hatch are going to great lengths to keep the submissions private, but some Senators have declined privacy and released letters to the public, with more expected to do so in the coming weeks.
The talk of the town in recent days has been President Obama's new plan to combine corporate tax reform with public investments in what President Obama calls a "grand bargain for middle class jobs." From a growth perspective, there is a lot to like about this proposal. But there is also a lot we find discouraging about a plan which would decouple corporate tax reform from any broader deficit reduction effort.