Tuesday, October 16, 2012
Committee for a Responsible Federal Budget: Tax Reform: Reducing Tax Rates and the Deficit:
There is a growing bipartisan consensus on the merits of enacting comprehensive tax reform that lowers tax rates and broadens the tax base – as was done in the 1986 tax reforms – while also reducing the deficit. Combining rate reduction with substantial cuts to tax preferences has the potential to not only help address our growing debt, but also to reduce economic distortions and promote robust economic growth.
Some commentators have used a recent experiment conducted by the Joint Committee on Taxation (JCT) to suggest that such tax reform is not possible since the experiment reduced the current law top rate from 39.6% down to only 38%. That conclusion is false and most comparisons between the JCT experiment and existing comprehensive tax reform plans are highly misleading. In this paper, we explain why. ...
[T]he full elimination of all tax expenditures would allow the top tax rate to fall to 23% while still putting aside more than $1 trillion for deficit reduction. An actual tax reform plan would be highly unlikely to achieve these same rate levels because there would be an interest in keeping, reforming, or at least slowly phasing out many tax expenditures repealed immediately in this exercise. However, this 23% top rate can serve as a helpful starting point for thinking about bold tax reforms.