Tax Reform in the United States by Jon Forman Alfred P. Murrah Professor of Law University of...
111
Tax Reform in the United States by Jon Forman Alfred P. Murrah Professor of Law University of Oklahoma Norman, Oklahoma & ATAX Fellow, UNSW TC Beirne School of Law University of Queensland Brisbane, Australia July 29, 2011
Tax Reform in the United States by Jon Forman Alfred P. Murrah Professor of Law University of Oklahoma Norman, Oklahoma & ATAX Fellow, UNSW TC Beirne School
Tax Reform in the United States by Jon Forman Alfred P. Murrah
Professor of Law University of Oklahoma Norman, Oklahoma & ATAX
Fellow, UNSW TC Beirne School of Law University of Queensland
Brisbane, Australia July 29, 2011
Slide 2
Overview The Budget Outlook Short-term Long-term Taxes The
Current Tax System Recent Tax Reform Proposals 2
Slide 3
3 U.S. Department of the Treasury, Financial Management
Service, A Citizens Guide to the Financial Report of the United
States Government (2010), at 2,
http://fms.treas.gov/fr/10frusg/10frusg.pdf.
http://fms.treas.gov/fr/10frusg/10frusg.pdf
Slide 4
4
Slide 5
5 Congressional Budget Office, The Budget and Economic Outlook:
Fiscal Years 2011 to 2021 (January 2011), at xv,
http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf
Slide 6
6
Slide 7
7 Congressional Budget Office, Four Observations about the
Federal Budget (March 7, 2011), at 6
http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf.
http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf
Slide 8
8 http://cboblog.cbo.gov/?p=2371
Slide 9
Getting back in the black 9 Australian Government, Budget
Overview (2011), at 8,
http://cache.treasury.gov.au/budget/2011-12/content/download/Overview.pdf.
http://cache.treasury.gov.au/budget/2011-12/content/download/Overview.pdf
Slide 10
10 Australian Government, Budget Overview, Budget Statement 1,
at 1-13 (2011),
http://cache.treasury.gov.au/budget/2011-12/content/download/bp1.pdf.
http://cache.treasury.gov.au/budget/2011-12/content/download/bp1.pdf
Slide 11
Short-Term: Projected Budget Totals Budget Totals,
$billions20112012-2021 Receipts$2,228$39,084 Outlays$3,708$46,055
Deficit$1,480$ 6,971 Budget Totals, % GDP Receipts14.8%19.9%
Outlays24.7%23.5% Deficit9.8%3.6% Public Debt, % GDP69.4%75.3% 11
Congressional Budget Office, The Budget and Economic Outlook:
Fiscal Years 2011 to 2021 (January 2011), at xii,
http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf
Slide 12
12 Congressional Budget Office, Four Observations about the
Federal Budget (March 7, 2011), at 7,
http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf.
http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf
Slide 13
13 Congressional Budget Office, The Budget and Economic
Outlook: Fiscal Years 2011 to 2021 (January 2011), at 86,
http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf
Slide 14
14
Slide 15
15
Slide 16
16
Slide 17
17 Congressional Budget Office, Four Observations about the
Federal Budget (March 7, 2011), at 8,
http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf.
http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf
Slide 18
18 U.S. Department of the Treasury, Financial Management
Service, A Citizens Guide to the Financial Report of the United
States Government (2009).
Slide 19
19 Congressional Budget Office, The Long-Term Budget Outlook
(June 2011), at xi, http://www.cbo.gov/doc.cfm?index=12212.
http://www.cbo.gov/doc.cfm?index=12212
Slide 20
Sources of Growth in Federal Spending on Major Mandatory Health
Care Programs & Social Security, 2011 to 2035 (% GDP)
Congressional Budget Office, The Long-Term Budget Outlook (June
2011), at 11, http://www.cbo.gov/doc.cfm?index=12212.
http://www.cbo.gov/doc.cfm?index=12212
Slide 21
21 Congressional Budget Office, The Long-Term Budget Outlook
(June 2011), at 62, http://www.cbo.gov/doc.cfm?index=12212.
http://www.cbo.gov/doc.cfm?index=12212
Slide 22
22 U.S. Department of the Treasury, Financial Management
Service, A Citizens Guide to the Financial Report of the United
States Government (2010), at iii,
http://fms.treas.gov/fr/10frusg/10frusg.pdf.
http://fms.treas.gov/fr/10frusg/10frusg.pdf
Slide 23
23 U.S. Department of the Treasury, Financial Management
Service, A Citizens Guide to the Financial Report of the United
States Government (2010), at viii,
http://fms.treas.gov/fr/10frusg/10frusg.pdf.
http://fms.treas.gov/fr/10frusg/10frusg.pdf
Slide 24
24 U.S. Department of the Treasury, Financial Management
Service, A Citizens Guide to the Financial Report of the United
States Government (2010), at 12,
http://fms.treas.gov/fr/10frusg/10frusg.pdf.
http://fms.treas.gov/fr/10frusg/10frusg.pdf
Slide 25
25 U.S. Department of the Treasury, Financial Management
Service, A Citizens Guide to the Financial Report of the United
States Government (2010), at 18,
http://fms.treas.gov/fr/10frusg/10frusg.pdf.
http://fms.treas.gov/fr/10frusg/10frusg.pdf
Slide 26
26 Congressional Budget Office, The Long-Term Budget Outlook
(June 2011), at 80, http://www.cbo.gov/doc.cfm?index=12212.
http://www.cbo.gov/doc.cfm?index=12212
Slide 27
27 Congressional Budget Office, The Long-Term Budget Outlook
(June 2011), at 80, http://www.cbo.gov/doc.cfm?index=12212.
http://www.cbo.gov/doc.cfm?index=12212
Slide 28
Taxes Overview of the federal tax system Recent tax reform
proposals 28
Slide 29
29 Joint Committee on Taxation, Present Law and Historical
Overview of the Federal Tax System (JCX-1-11), January 18, 2011,
www.jct.gov.www.jct.gov Joint Committee on Taxation, Present Law
and Historical Overview of the Federal Tax System (JCX-1-11),
January 18, 2011, at 70, www.jct.gov.www.jct.gov
Slide 30
30 Congressional Budget Office, The Long-Term Budget Outlook
(June 2011), at 64, http://www.cbo.gov/doc.cfm?index=12212.
http://www.cbo.gov/doc.cfm?index=12212
32 Edward D. Kleinbard, Muddling Through the Budget Crisis
(January 6, 2011); OECD Tax Database,
http://www.oecd.org.http://www.oecd.org
Slide 33
33 Joint Committee on Taxation, Present Law and Historical
Overview of the Federal Tax System (JCX-1-11), January 18, 2011, at
72, www.jct.gov.www.jct.gov
Slide 34
34 Congressional Budget Office, Trends in Federal Tax Revenues
and Rates (December 2, 2010), at 10,
http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.http://finance.senate.gov/imo/media/doc/120210DEtest.pdf
Slide 35
U.S. Standard Deductions, Personal Exemptions, and Simple
Income Tax Thresholds, 2011 Unmarried individuals Heads of
household with one child Married couples filing joint returns with
two children Standard deduction$5,800$ 8,500$11,600 Personal
exemptions$3,700$ 7,400$14,800 Simple income tax threshold
$9,500$15,900$26,400 35 Rev. Proc. 2011-12, 2011-2 IRB 297,
http://www.irs.gov/pub/irs-irbs/irb11-02.pdf.http://www.irs.gov/pub/irs-irbs/irb11-02.pdf
Slide 36
Tax Rate Schedules for Various Taxpayers, 2011 36 Tax rate Rate
bracket Unmarried individuals Heads of household with one child
Married couples filing joint returns with two children 10$0 to
$8,500$0 to $12,150$0 to $17,000 15$8,500 to $34,500$12,150 to
$46,250$17,000 to $69,000 25$34,500 to $83,600$46,250 to
$119,400$69,000 to $139,350 28$83,600 to $174,400$119,400 to
$193,350$139,350 to $212,300 33$174,400 to $379,150$193,350 to
$379,150$212,300 to $379,150 35Over $379,150
Slide 37
37 Joint Committee on Taxation, Present Law and Historical
Overview of the Federal Tax System (JCX-1-11), January 18, 2011, at
71, www.jct.gov.www.jct.gov
Slide 38
Proposed Budget Receipts Receipts, $billions20112014 Individual
income taxes9981,671 Corporation income taxes279398 Payroll
taxes8191,092 Excise taxes7386 Estate and gift taxes1114 Custom
duties and other receipts4775 Total receipts2,2283,442
GDP$15,034$17,258 Receipts, % GDP14.8%19.9% 38 Congressional Budget
Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021
(January 2011), at 87,
http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf
Slide 39
39 Center on Budget and Policy Priorities, Top Ten Tax Charts
(April 14, 2011), http://www.offthechartsblog.org
/top-ten-tax-charts/. http://www.offthechartsblog.org
/top-ten-tax-charts/
Slide 40
40 U.S. Payroll Tax Rates: Selected Years 0 2 4 6 8 10 12 14 16
18 20 1940196019802010 Year Percent paid jointly by employee and
employer Medicare Social Security
Slide 41
41 Center on Budget and Policy Priorities, Top Ten Tax Charts
(April 14, 2011), http://www.offthechartsblog.org
/top-ten-tax-charts/. http://www.offthechartsblog.org
/top-ten-tax-charts/
Slide 42
42 Joint Committee on Taxation, Present Law and Historical
Overview of the Federal Tax System (JCX-1-11), January 18, 2011, at
66, www.jct.gov.www.jct.gov
Slide 43
43 Center on Budget and Policy Priorities, Top Ten Tax Charts
(April 14, 2011), http://www.offthecharts blog.org/top-ten-tax-
charts/. http://www.offthecharts blog.org/top-ten-tax- charts/
Slide 44
44 Top 10 Income Tax Expenditures, 2012 (Billions) Health
insurance exclusion $184 Mortgage interest deduction 99 401(k)
plans 68 Step-up of basis at death 61 Exclusion of net imputed
rental income 51 Deductible nonbusiness state and local taxes other
than on houses 49 Employer plans 45 Charitable contrib. (other than
health & education) 43 Capital gains (except agriculture,
timber, iron, coal) 38 Exclusion of interest on tax-exempt bonds 37
2012 Federal Budget, Analytical Perspectives, Chapter 17, Tax
Expenditures, Table 17-3,
http://www.whitehouse.gov/omb/budget/Analytical_Perspectives.
http://www.whitehouse.gov/omb/budget/Analytical_Perspectives
Slide 45
45 Congressional Budget Office, The Budget and Economic
Outlook: Fiscal Years 2011 to 2021 (January 2011), at 97.
http://www.cbo.gov/ftpdocs/120xx/doc12039/01-
26_FY2011Outlook.pdf.http://www.cbo.gov/ftpdocs/120xx/doc12039/01-
26_FY2011Outlook.pdf
Slide 46
46 Office of Management and the Budget, Budget of the United
States Government, Fiscal Year 2010 (2009), at 11,
http://www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf.http://www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf
Slide 47
47 20 Facts About U.S. Inequality that Everyone Should Know,
http://stanford.edu/group/scspi/cgi-bin/facts.php.
http://stanford.edu/group/scspi/cgi-bin/facts.php Productivity and
Real Income
Slide 48
Rising Poverty 48 U.S. Census Bureau, Income, Poverty, and
Health Insurance Coverage in the United States: 2009, at 14,
(Current Population Report No. P60-238, September 2010),
http://www.census.gov.http://www.census.gov
Slide 49
49 Congressional Budget Office, Trends in Federal Tax Revenues
and Rates (December 2, 2010), at 24,
http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.http://finance.senate.gov/imo/media/doc/120210DEtest.pdf
Slide 50
Rising Inequality 50
Slide 51
51 Congressional Budget Office, Trends in Federal Tax Revenues
and Rates (December 2, 2010), at 15,
http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.http://finance.senate.gov/imo/media/doc/120210DEtest.pdf
Slide 52
52
Slide 53
Shares of Total Business Returns and Net Income, 1980-2007
1980199020002007 S Corporations Returns4%8%11%12% Net Income1%8%14%
Partnerships Returns11%8% 10% Net Income3% 18%23% Sole
Proprietorships Returns69%74%72% Net Income17%26%15%10% C
Corporations Returns17%11%9%6% Net Income80%62%53% 53 Internal
Revenue Service, Statistics of Income,
www.irs.gov/taxstats.www.irs.gov/taxstats
Slide 54
Expired Tax Provisions 2010 First-time homebuyer credit Making
work pay credit Build America Bonds Estate and gift tax regime for
2010 54 Joint Committee on Taxation, List of Expiring Federal Tax
Provisions, 2010-2020 (JCX-2-11), January 21, 2011,
www.jct.gov.www.jct.gov
Slide 55
Expiring Tax Provisions 2011 Tax credit for research and
experimentation expenses Increased AMT exemption amount Increase in
expensing to $500,000/$2,000,000 Above-the-line deduction for
qualified tuition and related expenses Temporary 2% payroll tax cut
55 Joint Committee on Taxation, List of Expiring Federal Tax
Provisions, 2010-2020 (JCX-2-11), January 21, 2011,
www.jct.gov.www.jct.gov
Slide 56
Expiring Tax Provisions 2012 Most 2001 and 2003 tax cuts 35%
maximum rate 10% minimum rate $1,000 child tax credit 15% capital
gain and dividend rates Expanded earned income tax credit American
opportunity tax credit Reduced estate and gift taxes 56 Joint
Committee on Taxation, List of Expiring Federal Tax Provisions,
2010-2020 (JCX-2-11), January 21, 2011,
www.jct.gov.www.jct.gov
Slide 57
57 Center on Budget and Policy Priorities, Top Ten Tax Charts
(April 14, 2011), http://www.offthechartsblog.org
/top-ten-tax-charts/. http://www.offthechartsblog.org
/top-ten-tax-charts/
Slide 58
Recent Tax Reform Proposals Presidents Economic Recovery
Advisory Board, The Report on Tax Reform Options: Simplification,
Compliance, and Corporate Taxation (August 2010). National
Commission on Fiscal Responsibility and Reform, The Moment of Truth
(December 2010). Bipartisan Policy Center, Restoring Americas
Future (November 2010). Co-Chairs: Pete Domenici & Alice Rivlin
58
Slide 59
Recent Tax Reform Proposals Bipartisan Tax Fairness and
Simplification Act of 2011 (2011). Senators Ron Wyden and Dan Coats
Rep. Paul Ryan, The Roadmap Plan (2010). National Taxpayer
Advocate, 2010 Annual Report to Congress (December 31, 2010).
President Obamas FY2012 Budget 59
Slide 60
Recent Tax Reform Proposals President Obama, Framework for
Shared Prosperity and Shared Fiscal Responsibility (April 13,
2011). See also: Choosing The Nations Fiscal Future (National
Research Council & National Academy of Public Administration
2010) The Peterson-Pew Commission on Budget Reform, Red Ink Rising:
A Call to Action to Stem the Mounting Federal Debt (2009). 60
Slide 61
Principles of Sound Tax Policy Simplicity Transparency
Neutrality Stability No Retroactivity Broad Bases and Low Rates 61
Tax Foundation, The Principles of Sound Tax Policy,
http://www.taxfoundation.org/publications/show/25982.html.
http://www.taxfoundation.org/publications/show/25982.html
Slide 62
62 More Principles of Sound Tax Policy Distribution matters A
just distribution of economic resources Intergenerational justice/
Deficits Behavioral consequences matter Encourage work and savings
Marriage penalties and bonuses Keep effective rates as low as
possible Growth and a stronger dollar
Slide 63
The need to raise revenue makes it more crucial, not less, to
enact structural reforms that focus on efficiency, equity and
simplicity in the tax system. William G. Gale & Benjamin H.
Harris, Reforming Taxes and Raising Revenue: Part of the Fiscal
Solution (May 2011), http://www.brookings.edu/papers/2011/05
_fiscal_solution_gale_harris.aspx.
http://www.brookings.edu/papers/2011/05
_fiscal_solution_gale_harris.aspx Income & Payroll Tax; VAT or
Energy Tax 63 More Principles of Sound Tax Policy
Slide 64
64 Tax Base Income Consumption Earnings Wealth
Slide 65
PERAB: Simplification Options Simplification for Families
Consolidate Family Credits and Simplify Eligibility Rules Simplify
and Consolidate Tax Incentives for Education 65 PERAB, The Report
on Tax Reform Options: Simplification, Compliance, and Corporate
Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf
Slide 66
PERAB: Simplification Options Simplify Savings and Retirement
Incentives Consolidate Retirement Accounts Integrate IRA and
401(k)-type Contribution Limits and Disallow Nondeductible
Contributions Consolidate Non-Retirement Savings Reduce Retirement
Account Leakage Simplify Taxation of Social Security 66 PERAB, The
Report on Tax Reform Options: Simplification, Compliance, and
Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf
Slide 67
PERAB: Simplification Options Simplify Taxation of Capital
Gains Harmonize Rules and Tax Rates for Long-Term Capital Gains
Simplify Capital Gains Tax Rate Structure Limit or Repeal Section
1031 Like-Kind Exchanges Capital Gains on Principal Residences 67
PERAB, The Report on Tax Reform Options: Simplification,
Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf
Slide 68
PERAB: Simplification Options Simplify Tax Filing The Simple
Return Data Retrieval Raise the Standard Deduction and Reduce the
Benefit of Itemized Deductions Simplification for Small Business
The Alternative Minimum Tax 68 PERAB, The Report on Tax Reform
Options: Simplification, Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf
Slide 69
PERAB: Compliance Options Dedicate More Resources to
Enforcement and Enhance Enforcement Tools Increase Information
Reporting and Source Withholding Clarify the Definition of a
Contractor 69 PERAB, The Report on Tax Reform Options:
Simplification, Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf
Slide 70
PERAB: Corporate Tax Reform Reduce Marginal Corporate Rates
Broaden the Corporate Tax Base Eliminate or Reduce Tax Expenditures
Eliminate the Domestic Production Deduction Eliminate or Reduce
Accelerated Depreciation Eliminate Other Tax Expenditures 70 PERAB,
The Report on Tax Reform Options: Simplification, Compliance, and
Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf
Slide 71
PERAB: International Corporate Tax Issues Option 1: Move to a
Territorial System Option 2: Move to a Worldwide System with a
Lower Corporate Tax Rate Option 3: Limit or End Deferral with the
Current Corporate Tax Rate Option 4: Retain the Current System but
Lower the Corporate Tax Rate 71 PERAB, The Report on Tax Reform
Options: Simplification, Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf
Slide 72
Presidents Fiscal Commission Co-chairs: Alan Simpson &
Erskine Bowles Designed to raise 21% of GDP Individual tax rates of
12, 22, and 28% Eliminate the AMT Eliminate the phase-out of
personal exemptions & limits on itemized deductions Eliminate
itemized deductions but retain standard deduction & personal
exemptions Tax capital gains & dividends as ordinary income 72
The National Commission on Fiscal Responsibility and Reform, The
Moment of Truth (December 2010), http://www.fiscalcommission.gov;
Tax Policy Center,
http://www.taxpolicycenter.org.http://www.fiscalcommission.govhttp://www.taxpolicycenter.org
Slide 73
Presidents Fiscal Commission Eliminate tax expenditures except:
child credit and earned income tax credit mortgage interest
deductionreplace with 12% credit; $500,000 mortgage cap cap and
phase out the exclusion for employer-sponsored health care
charitable giving deductionreplace with 12% credit for
contributions over 2% AGI 73 The National Commission on Fiscal
Responsibility and Reform, The Moment of Truth (December 2010),
http://www.fiscalcommission.gov.http://www.fiscalcommission.gov
Slide 74
Presidents Fiscal Commission Eliminate tax expenditures except:
exclusion of interest on state and municipal bondstax interest only
on newly-issued bonds retirement savingsmaintain basic preferences,
but consolidate retirement accounts and cap annual tax-preferred
contributions at lower of $20,000 or 20 percent of income; expand
savers credit defined benefit pensions 74 The National Commission
on Fiscal Responsibility and Reform, The Moment of Truth (December
2010),
http://www.fiscalcommission.gov.http://www.fiscalcommission.gov
Slide 75
Presidents Fiscal Commission Eliminate corporate tax
expenditures & reduce corporate tax rate to 28% Territorial tax
system for active foreign-source income Increase Social Security
taxable wage base to 90% of wages, by 2050 Increase the gasoline
excise tax on gasoline by 15 per gallon 75 The National Commission
on Fiscal Responsibility and Reform, The Moment of Truth (December
2010),
http://www.fiscalcommission.gov.http://www.fiscalcommission.gov
Slide 76
Bipartisan Policy Center Co-Chairs: Pete Domenici & Alice
Rivlin one-year payroll tax holiday in 2011 to help stimulate
economic recovery individual tax rates: 15% on the 1st $50,000 of
taxable income ($100,000 for married couples, 27% on excess
eliminate the AMT 76 Bipartisan Policy Center, Restoring Americas
Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf
Slide 77
Bipartisan Policy Center Eliminate tax expenditures: exclusion
from tax of the inside buildup of life insurance and deferred
annuities credits and deductions for higher education expenses
credit for child & dependent care exclusion from income of
benefits under Section 125 cafeteria plans foreign earned income
exclusion 77 Bipartisan Policy Center, Restoring Americas Future
(November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf
Slide 78
Bipartisan Policy Center Exempt the first $1,000 of net long-
term gains from taxation (indexed for inflation) tax any additional
long-term gains and all qualified dividends as ordinary income
include in income unrealized capital gains at death Cap and phase
out the exclusion for employer-sponsored health care 78 Bipartisan
Policy Center, Restoring Americas Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf
Slide 79
Bipartisan Policy Center Eliminate deduction for state and
local taxes Replace charitable contributions and mortgage interest
deductions with 15% refundable credits Retain medical deduction 79
Bipartisan Policy Center, Restoring Americas Future (November
2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf
Slide 80
Bipartisan Policy Center Replace the standard deduction,
personal exemptions, head of household filing status, the child tax
credit, and the earned income tax credit with two refundable
credits: $1,600 for each dependent child an earnings credit equal
to 21.3 percent of the first $20,300 of earnings 80 Bipartisan
Policy Center, Restoring Americas Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf
Slide 81
Bipartisan Policy Center Tax all Social Security benefits,
eliminate the elderly credit & provide 2 new credits: 7.5% of
Social Security benefits 15% of the current standard deduction for
individuals age 65 or older Increase Social Security taxable wage
base to 90% of wages 81 Bipartisan Policy Center, Restoring
Americas Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf
Slide 82
Bipartisan Policy Center Impose a 6.5% broad-based consumption
tax Impose an excise tax 1/ounce on sugar-sweetened beverages Raise
the excise tax on alcoholic beverages to 25/ounce Estate tax: $3.5
million exemption and 45% maximum tax rate 82 Bipartisan Policy
Center, Restoring Americas Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf
Slide 83
Bipartisan Policy Center Corporate taxes reduce the corporate
rate to 27% eliminate many tax expenditures: domestic production
deduction research and experimentation credit accelerated
depreciation for rental housing retain deferral of income for
controlled foreign corporations 83 Bipartisan Policy Center,
Restoring Americas Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf
Slide 84
Wyden-Coats Tax Act Like the Tax Reform Act of 1986 Individuals
top tax rate of 35% standard deduction of $15,000 ($30,000 for
couples) repeal AMT 35% exclusion for capital gains and qualified
dividends eliminate lots of tax breaks 84 Senator Ron Wyden, The
Bipartisan Tax Fairness and Simplification Act of 2011 (2011),
http://wyden.senate.gov/issues/legislation/details/?id=fb5b603a-ed94-48a8-8ff1-c220c1052b3f.
http://wyden.senate.gov/issues/legislation/details/?id=fb5b603a-ed94-48a8-8ff1-c220c1052b3f
Slide 85
Wyden-Coats Tax Act Corporate & business replaces the
graduated corporate rate structure with a flat rate of 24%
eliminates many business tax breaks allow unlimited expensing of
equipment and inventories for small businesses 85 Senator Ron
Wyden, The Bipartisan Tax Fairness and Simplification Act of 2011
(2011),
http://wyden.senate.gov/issues/legislation/details/?id=fb5b603a-ed94-48a8-8ff1-c220c1052b3f.
http://wyden.senate.gov/issues/legislation/details/?id=fb5b603a-ed94-48a8-8ff1-c220c1052b3f
Slide 86
Rep. Ryans Roadmap Designed to raise 19% of GDP Pay income
taxes through existing law, or Through a highly simplified code
with virtually no tax breaks 10% on the first $50,000 ($100,000 for
couples), 25% on the rest $39,000 standard deduction & personal
exemptions for a family of 4 86 Paul Ryan, The Roadmap Plan (2010),
http://www.roadmap.republicans.budget.house.gov.http://www.roadmap.republicans.budget.house.gov
Slide 87
Rep. Ryans Roadmap eliminate the AMT eliminate taxes on
interest, capital gains, and dividends Eliminate the estate tax
Replace the corporate income tax with a border-adjustable business
consumption tax of 8.5% See also House Committee on Budget, The
Path to Prosperity (2011) 87 Paul Ryan, The Roadmap Plan (2010),
http://www.roadmap.republicans.budget.house.gov.http://www.roadmap.republicans.budget.house.gov
Slide 88
National Taxpayer Advocate Repeal the AMT Consolidate the
family tax provisions Improve other provisions relating to taxation
of the family unit Consolidate education savings incentives
Consolidate retirement savings incentives 88 National Taxpayer
Advocate, 2010 Annual Report to Congress (December 31, 2010),
http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report.
http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report
Slide 89
National Taxpayer Advocate Simplify worker classification
determinations Eliminate (or reduce incentives for lawmakers to
enact tax sunsets Eliminate (or simplify) phase outs Streamline the
penalty regime 89 National Taxpayer Advocate, 2010 Annual Report to
Congress (December 31, 2010),
http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report.
http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report
Slide 90
President Obama: Reform Corporate & Individual Tax Im
asking Democrats and Republicans to simplify the system. Get rid of
the loopholes. Level the playing field. And use the savings to
lower the corporate tax rate for the first time in 25 years without
adding to our deficit. It can be done. In fact, the best thing we
could do for all Americans is to simplify the individual tax code.
This will be a tough job, but members of both parties have
expressed interest in doing this, and I am prepared to join them.
90 Text of President Barack Obamas State of the Union Address,
http://www.politico.com/news/stories/0111/48181.html.
http://www.politico.com/news/stories/0111/48181.html
Slide 91
President Obamas 2012 Budget Extend the Earned Income Credit
Expand the Dependent Care Credit Extend American Opportunity Credit
Tax Dividends and Net Long-Term Capital Gains at a 20-Percent Rate
for Upper-Income Taxpayers Reduce the Value of Certain Tax
Expenditures for Upper-Income 91 U.S. Department of the Treasury,
General Explanations of the Administrations Fiscal Year 2012
Revenue Proposals (February 2011),
http://www.treasury.gov/.http://www.treasury.gov/
Slide 92
Enhance and Make Permanent the Research and Experimentation
(R&E) Tax Credit Reform & Extend Build America Bonds Reform
Treatment of Financial Institutions and Products Reinstate
Superfund Taxes Reform U.S. International Tax System 92 President
Obamas 2012 Budget U.S. Department of the Treasury, General
Explanations of the Administrations Fiscal Year 2012 Revenue
Proposals (February 2011),
http://www.treasury.gov/.http://www.treasury.gov/
Slide 93
President Obamas 2012 Budget Eliminate Oil and Gas Preferences
Eliminate Coal Preferences Expand Information Reporting Improve
Compliance by Businesses Require Greater Electronic Filing Worker
Classification Strengthen Tax Administration Expand Penalties 93
U.S. Department of the Treasury, General Explanations of the
Administrations Fiscal Year 2012 Revenue Proposals (February 2011),
http://www.treasury.gov/.http://www.treasury.gov/
Slide 94
President Obamas Framework for Shared Prosperity and Shared
Fiscal Responsibility 94 The White House,
http://www.whitehouse.gov/winning-the-future/fiscal-framework.http://www.whitehouse.gov/winning-the-future/fiscal-framework
Slide 95
President Obamas Framework: another 12-year estimate: $5.3T
Restore high-bracket tax rates to Clinton-era levels: $1T Cut
tax-expenditure spending through the tax code: $1T Cut health care
spending: $0.5T Cut other mandatory spending by: $0.4T Cut security
spending: $0.4T Cut non-security discretionary spending: $0.8T
Those reductions will carry with them a reduction in net interest
of: $1.2T 95 Brad DeLong,
http://delong.typepad.com/sdj/2011/04/the-obama-deficit-reduction-
framework.html.http://delong.typepad.com/sdj/2011/04/the-obama-deficit-reduction-
framework.html
Slide 96
President Obamas Framework: Tax Reform $3 of spending cuts and
interest savings for every $1 from tax reform that contributes to
deficit reduction comprehensive tax reform to produce a system
which is fairer, has fewer loopholes, less complexity, and is not
rigged in favor of those with lawyers and accountants to game it.
96 The White House, Fact Sheet: The Presidents Framework for Shared
Prosperity and Shared Fiscal Responsibility (April 13, 2011),
www.whitehouse.gov.www.whitehouse.gov
Slide 97
President Obamas Framework: Tax Reform Would not extend the
Bush tax cuts for the wealthiest Americans Builds on the Fiscal
Commissions goal of reducing tax expenditures to both lower rates
and lower the deficit Corporate tax eliminate loopholes reduce
distortions lower the corporate tax rate 97 The White House, Fact
Sheet: The Presidents Framework for Shared Prosperity and Shared
Fiscal Responsibility (April 13, 2011),
www.whitehouse.gov.www.whitehouse.gov
Slide 98
Center for American Progress (left-wing plan) 15% income tax
rate on couples with income under $100,000 Most loopholes
eliminated; 15% credits instead Tax on greenhouse gases & oil
import fee of $5 per barrel Financial transactions tax Remove cap
on employer payroll tax Estate tax 98 Peter G. Peterson Foundation,
2011 Fiscal Summit: Solutions for Americas Future (May 2011), at
44-46.
Slide 99
Heritage Foundation (right-wing plan) Single-rate tax income
tax on all income sources that are spent on consumption (savings
are deductible) Eliminates the estate tax Few deductions of credits
Rate set to raise 18.5% of GDP Probably 25-30% 99 Peter G. Peterson
Foundation, 2011 Fiscal Summit: Solutions for Americas Future (May
2011), at 57-59.
Slide 100
Probable Reforms Eliminate the LIFO method of accounting Repeal
oil company tax breaks Eliminate graduated corporate rates
Eliminate capital gains treatment of carried interest for fund
managers Limiting the benefit of itemized deductions to 28 percent
100 Sullivan: What the Debt Limit Debacle Teaches Us About Tax
Reform,
http://taxprof.typepad.com/taxprof_blog/2011/07/sullivan-what.html
http://taxprof.typepad.com/taxprof_blog/2011/07/sullivan-what.html
Slide 101
Probable Reforms continued Close tax haven loopholes Impose
corporate tax on large passthrough entities Extend the depreciable
life of corporate aircraft to seven years Repeal the
45-cent-per-gallon tax credit for corn ethanol Repeal the deduction
for domestic production activities 101
Slide 102
Consumption Tax Options Progressive Personal Consumption Tax
Subtraction method Value Added Tax Treasury Department proposal for
Business Activity Tax (BAT) Credit-method (European) VAT National
retail sales tax (RST) 102 Charles E. McClure, Jr., Why the United
States Needs a Value Added Tax (2009),
http://www.taxadmin.org/Fta/meet/09am/papers/McClure.pdf.
http://www.taxadmin.org/Fta/meet/09am/papers/McClure.pdf
Slide 103
Slide 104
Earlier Tax Reform Proposals Presidents Advisory Panel on Tax
Reform, Final Report (2005), http://govinfo.library.unt.edu/taxrefo
rmpanel. http://govinfo.library.unt.edu/taxrefo rmpanel U.S.
Treasury Department, The President's Tax Proposals to the Congress
for Fairness, Growth, and Simplicity (1985). 104
Slide 105
Earlier Tax Reform Proposals U.S. Treasury Department, Tax
Reform for Fairness, Simplicity, and Economic Growth: The Treasury
Department Report to the President (3 volumes, 1984). David
Bradford and the U.S. Treasury Tax Policy Staff, Blueprints for Tax
Reform (Arlington, VA: Tax Analysts. 2nd ed. 1984). 105
Slide 106
106 Conclusion President needs 60 votes in the Senate and
cooperation in the House The whole tax system is in play And will
be in play for years Lobbyists will be tripping over each other
Change is almost always incremental
Slide 107
Sources The Presidents Economic Recovery Advisory Board, The
Report on Tax Reform Options: Simplification, Compliance, and
Corporate Taxation (August 2010), http://www.whitehouse.gov.
http://www.whitehouse.gov The National Commission on Fiscal
Responsibility and Reform, The Moment of Truth (December 2010),
http://www.fiscalcommission.gov. http://www.fiscalcommission.gov
The Bipartisan Policy Center Debt Reduction Task Force, Restoring
Americas Future: Reviving the Economy, Cutting Spending and Debt,
and Creating a Simple, Pro- Growth Tax System (November 2010),
http://bipartisanpolicy.org. http://bipartisanpolicy.org 107
Slide 108
Sources Senators Ron Wyden & Dan Coats, Bipartisan Tax
Fairness and Simplification Act of 2011 (2011),
http://wyden.senate.gov/issues/legislation/details/?id=f
b5b603a-ed94-48a8-8ff1-c220c1052b3f.
http://wyden.senate.gov/issues/legislation/details/?id=f
b5b603a-ed94-48a8-8ff1-c220c1052b3f Representative Paul Ryan, The
Roadmap Plan (2010),
http://www.roadmap.republicans.budget.house.gov.
http://www.roadmap.republicans.budget.house.gov House Committee on
Budget, The Path to Prosperity: Restoring Americas Promise (2011),
http://budget.house.gov/UploadedFiles/PathToProsperity FY2012.pdf.
http://budget.house.gov/UploadedFiles/PathToProsperity FY2012.pdf
Joint Committee on Taxation, Present Law and Historical Overview of
the Federal Tax System (JCX-1-11), January 18, 2011,
www.jct.gov.www.jct.gov 108
Slide 109
Sources National Taxpayer Advocate, 2010 Annual Report to
Congress (December 31, 2010),
http://www.taxpayeradvocate.irs.gov/Media-
Resources/Annual-Report-To-Congress-Full-Report.
http://www.taxpayeradvocate.irs.gov/Media-
Resources/Annual-Report-To-Congress-Full-Report Office of
Management and Budget, 2012 Federal Budget,
http://www.whitehouse.gov/omb/budget.
http://www.whitehouse.gov/omb/budget The White House, Fact Sheet:
The Presidents Framework for Shared Prosperity and Shared Fiscal
Responsibility (April 13, 2011),
www.whitehouse.gov.www.whitehouse.gov Joint Committee on Taxation,
List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11),
January 21, 2011, www.jct.gov. www.jct.gov 109
Slide 110
Sources The Tax Policy Center, Deficit Reduction Proposals,
http://www.taxpolicycenter.org/taxtopics/Deficit-
Reduction-Proposals.cfm.
http://www.taxpolicycenter.org/taxtopics/Deficit-
Reduction-Proposals.cfm Joshua Rosenberg, The U.S. Fiscal
Trajectory: Causes and Consequences (January 21, 2011),
http://www.abanet.org/tax/MID11/papers/Rosenberg-
slidesABA-Boca-Rosenberg.pdf.
http://www.abanet.org/tax/MID11/papers/Rosenberg-
slidesABA-Boca-Rosenberg.pdf Peter G. Peterson Foundation, 2011
Fiscal Summit: Solutions for Americas Future (May 2011),
http://www.pgpf.org/Issues/Fiscal-
Outlook/2011/01/20/~/media/88A2881EBE18412EB569 ECFC626DA220.
http://www.pgpf.org/Issues/Fiscal-
Outlook/2011/01/20/~/media/88A2881EBE18412EB569 ECFC626DA220 110
U.S. Department of the Treasury, General Explanations of the
Administrations Fiscal Year 2012 Revenue Proposals (February 2011),
http://www.treasury.gov/.http://www.treasury.gov/
Slide 111
About the Author Jonathan Barry Forman (Jon) is the Alfred P.
Murrah Professor of Law at the University of Oklahoma College of
Law and the author of Making America Work (Washington, DC: Urban
Institute Press, 2006). Jon was the Professor in Residence at the
Internal Revenue Service Office of Chief Counsel, Washington, DC,
for the 2009-2010 academic year. Jon can be reached at
[email protected], 405-325-4779,
www.law.ou.edu/faculty/[email protected]
www.law.ou.edu/faculty/forman.shtml 111