With the results of the November elections still looming, taxpayers are left with an uncertain tax future as Bush’s tax cuts remain in a state of uncertainty. Although legislative action to extend or modify the Bush-era taxes seem non-existent, the President still refuses to throw tax reform out the window.
With a month and a half left before our tax code reverts back to the pre-Bush era, Obama’s debt panel released (3) new tax reform options:
The co-chairmen of President Obama’s National Commission on Fiscal Responsibility and Reform released a discussion draft in advance of its final report to be issued on December 1. The report presents three tax reform options:
Option 1: The Zero Plan
- Consolidate the tax code into three individual rates and one corporate rate
- Eliminate the AMT, Pease, and PEP
- Eliminate all $1.1 trillion of tax expenditures
- Dedicate a portion of savings to deficit reduction and apply the rest to reduce all marginal tax rates
- Add back in any desired tax expenditures, and pay for them by increasing one or all of the rates from their zero expenditure low
Option 2: Wyden-Gregg Style Reform Individual Tax Reform
- Repeal AMT, PEP, and Pease
- Establish 3 rates – 15%, 25% and 35%
- Triple standard deduction to $30,000 ($15,000 for individuals)
- Repeal state & local tax deduction, cafeteria plans, and miscellaneous itemized deductions
- Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
- Limit charitable deduction with floor at 2% of AGI
- Cap income tax exclusion for employer-provided healthcare at the amount of the actuarial value of FEHBP standard option
- Modify and repeal several other tax expenditures
- Dedicate portion of savings to deficit reduction Corporate tax reform * Reduce corporate tax rate to 26%
- Permanently extend the research credit
- Eliminate and modify several business tax expenditures, including:
- Domestic production deduction
- LIFO method of accounting
- Energy tax preferences for the oil and gas industry
- Depreciation rules
- International tax reform including a territorial system
Option 3: Tax Reform Trigger
- Call on Finance and Ways & Means Committees and Treasury to develop and enact comprehensive tax reform by end of 2012
- Put in place across-the-board “haircut” for itemized deductions, employer health exclusion, and general business credits that would take effect in 2013 if reform is not yet enacted
- Haircut would limit proportion of deductions and exclusions individuals could take to around 85% in 2015. Similarly, corporations would only take some proportion of their general business credits
- Set haircut to increase over time until tax reform is enacted