Distributional Effects of the Major Individual Income Tax Provisions of H.R. 3970

Distributional Effects of the Major Individual Income Tax Provisions of H.R. 3970Greg Leiserson, Jeff Rohaly

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

The text below is an excerpt from the complete document. Read the full paper in PDF format.

On October 25, 2007, Ways and Means Committee Chairman Charles Rangel (D-NY) unveiled H.R. 3970, The Tax Reduction and Reform Act of 2007, sweeping tax reform legislation that would provide for a revenue-neutral repeal of the individual alternative minimum tax (AMT). This paper describes the proposal and provides distribution tables that analyze the impact of the major individual income tax provisions in the bill.

On October 25, 2007, Ways and Means Committee Chairman Charles Rangel (D, NY) unveiled sweeping tax reform legislation that would provide for a revenue-neutral repeal of the individual alternative minimum tax (AMT). The bill would also increase the standard deduction, expand the earned income tax credit (EITC) for childless individuals, and increase the availability of the refundable child tax credit. These changes are projected to reduce individual income tax revenues by about $882 billion over ten years.

The cost of these cuts would be largely offset by three provisions designed to raise about $867 billion over that same period: a surtax on high-income taxpayers; reinstating the limitation on itemized deductions and personal exemptions; and further limiting the deductibility of miscellaneous itemized deductions such as employee business expenses.

All of the above provisions would be effective beginning in 2008. For 2007, the bill extends, and indexes for inflation, the AMT relief that was in place for 2006. It also extends for one year certain expiring provisions such as the R&D credit, the deduction for state and local general sales taxes, and the above-the-line deduction for qualified tuition and related expenses.

Our distribution tables include the impact of all the broad-based individual income tax provisions of the bill described above. The legislation also makes several other more narrowly targeted individual income tax changes, including the taxation of carried interest as ordinary income. It also makes changes to corporate taxes including a reduction in the top corporate marginal tax rate from 35 percent to 30.5 percent, repeal of the domestic production activities deduction, and repeal of the last-in, first-out (LIFO) accounting method.

(End of excerpt. The entire paper is available in PDF format.)

View the original article here