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Tax Reform and Deficit Reduction

Tax Reform and Deficit Reduction. Professor Jon Forman University of Oklahoma Slides for a panel of the Comm. on Tax Policy and Simplification ABA Section of Taxation Washington, DC May 6, 2011. Overview. The Budget Outlook Short-term Long-term Taxes The Current Tax System

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Tax Reform and Deficit Reduction

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  1. Tax Reform and Deficit Reduction Professor Jon Forman University of Oklahoma Slides for a panel of the Comm. on Tax Policy and Simplification ABA Section of Taxation Washington, DC May 6, 2011

  2. Overview • The Budget Outlook • Short-term • Long-term • Taxes • The Current Tax System • Recent Tax Reform Proposals

  3. Short-Term:Projected Budget Totals Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021 (January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.

  4. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021 (January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.

  5. 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.

  6. 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.

  7. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021 (January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.

  8. 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.

  9. U.S. Department of the Treasury, Financial Management Service, A Citizen’s Guide to the Financial Report of the United States Government (2009).

  10. Congressional Budget Office, The Long-Term Budget Outlook (Revised August 2010), at 5, http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf.

  11. Factors Explaining Future Federal Spending on Medicare, Medicaid, and Social Security (percentage of GDP) • Congressional Budget Office, The Long-Term Budget Outlook (June 2009), at 12 (Box 1-2).

  12. Taxes • Overview of the federal tax system • Recent tax reform proposals

  13. 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.

  14. Proposed Budget Receipts Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021 (January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.

  15. Center on Budget and Policy Priorities, Top Ten Tax Charts (April 14, 2011), http://www.offthechartsblog.org/top-ten-tax-charts/.

  16. Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System (JCX-1-11), January 18, 2011, 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.

  17. U.S. Payroll Tax Rates: Selected Years 20 18 16 14 12 Percent paid jointly by employee and employer Medicare 10 Social Security 8 6 4 2 0 1940 1960 1980 2010 Year

  18. Tax-to-GDP ratio, 2008 OECD Tax Database, http://www.oecd.org.

  19. Edward D. Kleinbard, Muddling Through the Budget Crisis (January 6, 2011); OECD Tax Database, http://www.oecd.org.

  20. 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.

  21. Congressional Budget Office, Trends in Federal Tax Revenues and Rates (December 2, 2010), at 10, http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.

  22. Center on Budget and Policy Priorities, Top Ten Tax Charts (April 14, 2011), http://www.offthechartsblog.org/top-ten-tax-charts/.

  23. 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.

  24. Center on Budget and Policy Priorities, Top Ten Tax Charts (April 14, 2011), http://www.offthechartsblog.org/top-ten-tax-charts/.

  25. Top 10 Income Tax Expenditures, 2012 (Billions) 29 2012 Federal Budget, Analytical Perspectives, Chapter 17, Tax Expenditures, Table 17-3, http://www.whitehouse.gov/omb/budget/Analytical_Perspectives.

  26. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021 (January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.

  27. 31 • Office of Management and the Budget, A New Era of Responsibility: Renewing America’s Promise (2009).

  28. Productivity and Real Income 20 Facts About U.S. Inequality that Everyone Should Know, http://stanford.edu/group/scspi/cgi-bin/facts.php.

  29. Rising Poverty U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2009, (Current Population Report No. P60-238, September 2010), http://www.census.gov.

  30. Congressional Budget Office, Trends in Federal Tax Revenues and Rates (December 2, 2010), at 24, http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.

  31. Rising Inequality

  32. Congressional Budget Office, Trends in Federal Tax Revenues and Rates (December 2, 2010), at 15, http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.

  33. Shares of Total Business Returns and Net Income, 1980-2007 Internal Revenue Service, Statistics of Income, www.irs.gov/taxstats.

  34. Expired Tax Provisions 2010 • First-time homebuyer credit • Making work pay credit • Build America Bonds • Estate and gift tax regime for 2010 Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11), January 21, 2011, www.jct.gov.

  35. 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 Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11), January 21, 2011, www.jct.gov.

  36. 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 Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11), January 21, 2011, www.jct.gov.

  37. Center on Budget and Policy Priorities, Top Ten Tax Charts (April 14, 2011), http://www.offthechartsblog.org/top-ten-tax-charts/.

  38. Recent Tax Reform Proposals • President’s 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 America’s Future (November 2010). • Co-Chairs: Pete Domenici & Alice Rivlin

  39. 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 Obama’s FY2012 Budget

  40. Recent Tax Reform Proposals • President Obama, Framework for Shared Prosperity and Shared Fiscal Responsibility (April 13, 2011). • See also: • Choosing The Nation’s 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).

  41. Principles of Sound Tax Policy • Simplicity • Transparency • Neutrality • Stability • No Retroactivity • Broad Bases and Low Rates Tax Foundation, The Principles of Sound Tax Policy , http://www.taxfoundation.org/publications/show/25982.html.

  42. 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 47

  43. Tax Base Income Consumption Earnings Wealth

  44. PERAB: Simplification Options • Simplification for Families • Consolidate Family Credits and Simplify Eligibility Rules • Simplify and Consolidate Tax Incentives for Education 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.

  45. 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 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.

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