Showing posts with label Reform. Show all posts
Showing posts with label Reform. Show all posts

Wednesday, July 17, 2013

A Blueprint for Tax Reform and Health Reform : Before the Senate Committee on Finance

library A Blueprint for Tax Reform and Health ReformLeonard E. Burman

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.

In this testimony Burman outlines a plan for tax reform that would maintain progressivity, raise enough revenues to finance the government, and dovetail with plans to provide universal access to health insurance. It would combine a value-added tax (VAT) dedicated to pay for a new universal health insurance voucher with a vastly simplified and much flatter income tax. With a new financing source for health care, income tax rates could be cut sharply—the top rates could be cut to 25 percent or less. The health care voucher would also offset the inherent regressivity of a VAT. And, under the simplified system, most Americans would not have to file income tax returns.

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

Chairman Baucus, Ranking Member Grassley, and members of the committee: Thank you for inviting me to testify on tax reform.

It is a great honor to speak to you on this topic. The last great tax reform effort lured me to Washington away from academia to work for the Treasury Department in 1985. I remember when Chairman Packwood rescued reform from the abyss with his “27-percent solution”—a top rate so low it caught the public’s attention and sustained momentum for what became the Tax Reform Act of 1986. The creativity and bipartisanship of this committee were key elements in the success of the 1986 Act.

In the mid-1980s, the tax system desperately needed fixing. Tax shelters were rampant, with investment decisions often motivated solely by the tax savings they could produce, rather than their underlying economics, which were often dubious. The public had lost confidence in the fairness of the tax system.

If anything, the need for tax reform is even greater now for at least four reasons. First, under current law most of the tax cuts enacted since 2000 are set to expire at the end of 2010 and the code will revert to that of 2000. In theory, this will trigger what tax cut advocates are already calling the largest tax increase in history, but extending the tax cuts seems fiscally reckless. Second, the baby boomers are beginning to retire and the costs of providing their Social Security and medical care will strain available federal revenues. Third, under current law, the reach of the individual alternative minimum tax (AMT), a pointlessly complicated and unfair element of the current code, is scheduled to mushroom, hitting 32 million taxpayers by 2010, up from 4 million in 2007. Were that to happen the middle class would scream in protest, but making up for the hundreds of billions of dollars in revenue that the AMT is projected to produce will be a huge challenge. Finally, there is growing public dissatisfaction with our federal tax system which is complex, riddled with loopholes, and widely perceived to be unfair. It is hard to see how these challenges can be tackled without a major tax reform.

Although tax reform is always a long shot, there are reasons for optimism. Politicians in both parties—and even current presidential candidates—understand that the current situation is unsustainable. A new president who had campaigned on a platform of working in a bipartisan way to advance objectives that matter to both parties may be willing to stake political capital on advancing tax reform. And the fact that both sides acknowledge that this is a “change election” bodes well for the next president’s willingness to take political risks.

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

The views expressed are those of the author and should not be attributed to the Urban Institute, its trustees, or its funders.


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Individual Taxpayers and Federal Tax Reform : Testimony before the United States Senate Committee on Finance

library Individual Taxpayers and Federal Tax ReformWilliam G. Gale

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.

In the next few years, several factors will push tax issues to the forefront of policy discussions. First, under current law, almost all of the Bush Administration's tax cuts will expire at the end of 2010. A second factor is the rapid growth in the alternative minimum tax (AMT), which will increase the inequity and complexity of the tax system. A third issue is the expected increase in government spending over the next several decades. Despite these pressures on the system, tax changes are not inevitable, and achieving meaningful reform—that is, with substantial design improvements—will require strong political leadership. Gale's testimony focuses on some overarching principles that should guide tax reform efforts.

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

Chairman Baucus, Ranking Member Grassley, and other members of the Committee:
Thank you for inviting me to testify at this hearing on individual taxpayers and tax reform. The tax system needs to be simpler, more equitable, more conducive to prosperity, and sustainable. My remarks focus on some overarching principles that should guide reform efforts. There is no clean line between individual taxes and business taxes. In particular, individuals–not businesses–bear the burden of taxes imposed on businesses.
The key item in any tax reform is to broaden the tax base. The goal should be to tax all income once, tax it only once, at the full, income tax rate. Broadening the base taxes different types of activities at the same rate, and thus "levels the playing field," and reduces the extent to which taxes distort economic behavior;allows for lower rates in order to raise a given level of revenue, or allows an increase in the revenue level, if needed; lower overall rates, in turn, further reduce the extent to which taxes distort economic behavior; andmakes taxes simpler.After base broadening, special attention should be given to the form of any surviving tax preferences. Deductions are regressive and are only justified if there is a true reduction in ability to pay, a condition that is rarely met among existing tax preferences. Converting the deductions to flat, refundable credits would in most cases be preferable on revenue, distributional, incentive, and efficiency grounds.It is time to eliminate the AMT, but only if the revenue is replaced and the loopholes that would be created are closed.A revenue system that is not adequate to finance government spending will be unstable and unsustainable.The importance of simplifying the system can not be overstated. Taxpayers are overwhelmed by complexity, real and imagined, in the tax code. Oddly, although the need to simplify the tax system is the one goal everyone accepts in tax discussions, every year the system becomes more complex. If simplification is not the primary goal of reform, tax changes will likely make the tax system more complicated.

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

The views expressed are those of the author and should not be attributed to the Urban Institute, its trustees, or its funders.


View the original article here

The Tax Reform Act of 2010

library Leonard E. Burman

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.

© TAX ANALYSTS. Reprinted with permission.

Note: This report is available in its entirety in the Portable Document Format (PDF).

Twenty years ago, President Reagan signed an amazing piece of legislation, the Tax Reform Act of 1986 (TRA 86). It rid the income tax of many loopholes, shut down (at least for a while) the flourishing tax shelter industry, and made taxes simpler and fairer for tens of millions of Americans.

While its scope was breathtaking, the true miracle was that it happened at all. Arguably, the most important player in the tax reform saga (brilliantly recounted in Jeff Birnbaum and Alan Murray's book, Showdown at Gucci Gulch) was President Reagan. The president, after he signed the bill, laughed nervously and said that he had signed his name backwards. Given that he had had lots of experience signing his name almost six years into his presidency, the admission was somewhat disturbing.

The congressional leaders, too, had issues. Ways and Means Committee Chair Dan Rostenkowski, D-Ill., the bill's main protagonist in the House, eventually ended up in jail for embezzling postage stamps. His counterpart in the Senate, Bob Packwood, R-Ore., slunk out of Congress after several female staffers recounted his improper advances.

And, of course, an army of lobbyists was lined up in opposition to the reform (the tasseled-loafer-wearing denizens of Gucci Gulch). Somehow, the public interest triumphed, even if briefly, over all the forces arrayed against it. A miracle.

Now we need another tax reform miracle — even more than we did in 1986.

In 1986 tax shelters were rampant. Rich people could engineer transactions to avoid all or most of their tax liability. Voters believed the tax system was unfair and cheating was thought to be on the rise. Those problems exist to some extent today (although tax shelters seem to be more prevalent among corporations than individuals). But the real motivation for the Tax Reform Act of 2010 is a tax and budget tsunami about to hit our shores.

Note: This report is available in its entirety in the Portable Document Format (PDF).


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The Individual Alternative Minimum Tax : A presentation to the President's Advisory Panel on Federal Tax Reform

library Leonard E. Burman

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.

Note: This testimony is available in its entirety in the Portable Document Format (PDF).

Background

1966: 155 high-income taxpayers paid no income tax1969: creation of a minimum tax designed to ensure high income filers did not exploit tax laws to reduce or eliminate their federal income tax liability2010: Alternative Minimum Tax (AMT) will affect 30 million taxpayers, including virtually all upper-middle-class families with two or more kids.

Determination of AMT Liability

Add preferences and adjustments to taxable incomeSubtract AMT exemptionCalculate tax using AMT rate schedule and rulesIf more than regular tax, pay the difference as AMT(Many complexities left out of this simplified explanation.)


Note: This testimony is available in its entirety in the Portable Document Format (PDF).


View the original article here