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

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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.

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The Future of Individual Tax Rates: Effects of Economic Growth and Distribution : Leonard Burman's Testimony before the Senate Committee on Finance

The Future of Individual Tax Rates: Effects of Economic Growth and DistributionLeonard E. Burman

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Leonard Burman's testimony before the Senate Committee on Finance on whether and how to extend the 2001 and 2003 tax cuts.

Chairman Baucus, Ranking Member Grassley, Members of the Committee: Thank you for inviting me to share my views on whether and how to extend the 2001 and 2003 tax cuts. I am speaking for myself alone. My views should not be attributed to any of the organizations with which I am affiliated.

The expiration of the "Bush tax cuts" at the end of 2010 creates a number of decision points for the Congress: Should all or some of the tax cuts be extended? If so, should they be made permanent? If not, how long should they be extended for? And, if only some of the tax cuts are to be extended, which ones?

In short, I believe it would be a serious mistake to make any of the tax cuts permanent now. The income tax is a mess and is badly in need of an overhaul. It doesn't raise close to enough revenue to pay for current governmental expenditures and is needlessly complex, unfair, and inefficient. A system-wide reform along the lines of the Tax Reform Act of 1986, but with the goal of eventually raising enough revenue get the national debt out of the red zone should be a top priority for the Congress. Permanent extension of the tax cuts would make such a reform far more difficult and would signal to markets that our budget problems are only going to get worse.

However, I also think it would be a mistake to allow all of the tax cuts to expire as scheduled in 2011. The economy is in a very precarious state and a major tax increase would slow the economic recovery. With credit still in very short supply, low- and middle-income households are facing serious cash flow constraints. A tax increase would result in less spending, which would ripple through the economy, costing jobs and threatening the nascent recovery.

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The Future of Individual Tax Rates: Effects on Growth and Distribution : Donald Marron's Testimony Before the Senate Committee on Finance

The Future of Individual Tax Rates: Effects on Growth and DistributionDonald Marron

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Donald Marron's testimony before the Senate Committee on Finance on the individual tax system.

Chairman Baucus, Ranking Member Grassley, and Members of the Committee: Thank you for inviting me to appear today to discuss our individual income tax system.

As this committee knows well, our nation faces difficult economic and fiscal challenges. In the aftermath of the worst financial crisis since the 1930s, almost 15 million workers are unemployed, about one-tenth of our work force. Almost 7 million of those workers have been unemployed for six months or longer. And millions more lack jobs but don't count in the statistics because they're too discouraged to look for work. Moderate economic growth is expected to lower those figures only gradually over the next few years.

At the same time, budget deficits have rocketed to 60-year highs because of the financial crisis, the weak economy, and subsequent policy responses. As a result, the federal debt has grown from about 40 percent of gross domestic product (GDP) at the end of 2008 to about 60 percent of GDP today, the highest since just after World War II.

Deficits should narrow in coming years as the economy recovers and as policy responses to the recession wind down. Our long-term fiscal outlook remains daunting, however, because of a fundamental imbalance between spending and revenues. Because of an aging population and rising health care costs, spending is expected to grow significantly faster than revenues over the next 25 years, pushing our nation deeper into debt.

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