Tax Policy in the Next Clinton Administration

Senator Hillary Rodham Clinton yesterday released her American Dream Initiative, described by the New York Times as her attempt to "stake out the center... [with] a broad policy platform geared toward helping middle-class voters and the working poor through a series of tax credits and other modest government programs."  Among the tax proposals in the 20-page plan:

• Third-Party Reporting of Capital Gains. According to Tax Notes, the United States is losing billions of dollars in revenues from underreported capital gains. It is bad enough that the Bush administration has given the wealthiest Americans capital gains tax cuts they do not need; it is worse to see even those shrinking obligations go unpaid. We should require securities firms to report to the IRS not only the sale of assets, but the amount of capital gains. This change alone would produce $250 billion in new revenue over the next decade.
• A Single, Refundable $3,000 College Tuition Tax Credit. To help students and families pay for college, Washington has layered one new tax break upon another and created a confusing, often contradictory system. Under current law, there is no uniform definition of qualifying education expenses, there are different income limitations for different incentives, and much of this assistance comes with massive bureaucracy attached. If we want college to become as universal as high school, college aid needs to be simpler and more generous. We should simplify the tax code by replacing the HOPE tax credit, the Lifetime Learning Tax Credit, and the higher education deduction with a single, refundable $3,000 college tuition tax credit to help offset undergraduate and graduate costs for all families. This new credit will cover up to four years of college and graduate school. In addition, workers will be eligible to use the credit for education and training.
• Baby Bonds. The chance to get ahead depends in large part on having the assets to take advantage of it. The United States should follow Tony Blair's lead in Britain by providing a Baby Bond to each of the 4 million children born in America each year. A $500 savings bond at birth and again 10 years later would give young people from low- and middle-income families a stake in upward mobility. We should give families with incomes of $75,000 or less the option of directing their existing annual children's tax credit into these accounts, tax-free. The money could be used for college and training, a first home, and retirement savings.
• A Home Mortgage Deduction for Everyone. Many Americans cannot take advantage of the mortgage deduction because they do not itemize their taxes. Only one-half of American homeowners itemize, and only one-fifth of the 28 million households with annual incomes below $50,000 receive any homeowner subsidy. We should make sure the mortgage deduction helps those who need it most -- middle-income and working families -- by making the deduction available to those who do not itemize their taxes. This would enable an additional 10 million Americans to take advantage of the primary incentive to help individuals purchase homes.
• American Dream Down Payment Grant for Homebuyers. Owning a home is the biggest "prosperity escalator" into the middle class, yet many American households are missing out because they cannot afford the first step. As Hope Street Group has proposed, we should provide a $5,000 refundable tax credit for down payment assistance, which over the next 10 years will make homeownership possible for 7 million modest- to middle-income home buyers with good credit who would otherwise slip into the higher-interest rate sub-prime mortgage market or be rejected for a mortgage altogether. The credit would be available to home buyers earning up to 120 percent of their area median income. This program should work in conjunction with similar programs offered by state and local governments, financial institutions, and employers. We also should spur the construction of affordable homes by offering an Affordable Homes Tax Credit patterned after the successful Low- Income Housing Tax Credit. Finally, we should build on the model offered by the Federal Home Loan Banks, by creating an affordable housing fund to increase the stock of affordable housing.
• Housing America's Workforce. Police, firefighters, teachers, and other middle-class families should not be penalized for living and working in areas of the country with high median housing prices. Employer-assisted housing helps attract and retain workers and enhance the economic stability of communities. We should give employers a 50 percent tax credit for qualified employee housing assistance programs, and let working families exclude such housing assistance from their taxable income.