Obama's Debt Panel Releases Three Tax Reform Options

The co-chairmen of President Obama's National Commission on Fiscal Responsibility and Reform today released a discussion draft in advance of its final report to be issued on December 1.  The report presents three tax reform options:

Option 1: The Zero Plan

• Consolidate the tax code into three individual rates and one corporate rate
• Eliminate the AMT, Pease, and PEP
• Eliminate all $1.1 trillion of tax expenditures
• Dedicate a portion of savings to deficit reduction and apply the rest to reduce all marginal tax rates
• Add back in any desired tax expenditures, and pay for them by increasing one or all of the rates from their zero expenditure low

Option 2: Wyden-Gregg Style Reform Individual Tax Reform

• Repeal AMT, PEP, and Pease
• Establish 3 rates – 15%, 25% and 35%
• Triple standard deduction to $30,000 ($15,000 for individuals)
• Repeal state & local tax deduction, cafeteria plans, and miscellaneous itemized deductions
• Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
• Limit charitable deduction with floor at 2% of AGI
• Cap income tax exclusion for employer-provided healthcare at the amount of the actuarial value of FEHBP standard option
• Modify and repeal several other tax expenditures
• Dedicate portion of savings to deficit reduction Corporate tax reform * Reduce corporate tax rate to 26%
• Permanently extend the research credit
• Eliminate and modify several business tax expenditures, including:
•     Domestic production deduction
•     LIFO method of accounting    
•     Energy tax preferences for the oil and gas industry
•     Depreciation rules
• International tax reform including a territorial system

Option 3: Tax Reform Trigger

• Call on Finance and Ways & Means Committees and Treasury to develop and enact comprehensive tax reform by end of 2012
• Put in place across-the-board “haircut” for itemized deductions, employer health exclusion, and general business credits that would take effect in 2013 if reform is not yet enacted
• Haircut would limit proportion of deductions and exclusions individuals could take to around 85% in 2015. Similarly, corporations would only take some proportion of their general business credits
• Set haircut to increase over time until tax reform is enacted

Press and blogosphere coverage:

• ABC News
• Associated Press
• Bloomberg
• Don't Mess With Taxes
• Fox News
• Greg Mankiw's Blog
• New York Times
• Reuters
• Tax Policy Blog
• Tax Update Blog
• TaxVox Blog
• USA Today
• Wall Street Journal
• Washington Post
• Web CPA