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Tax Reform and Deficit Reduction

This presentation by Professor Jon Forman of the University of Oklahoma explores critical aspects of tax reform and deficit reduction, presented at the ABA Section on Taxation panel in Washington, DC on May 6, 2011. It covers the projected budget outlook, including short-term and long-term analyses, key tax system features, and recent reform proposals. The materials synthesize data from the Congressional Budget Office, the Department of the Treasury, and various tax-related studies, providing an overview essential for understanding federal fiscal policy challenges.

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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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