Pending Tax Reform Legislation

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Overview

Former President George W. Bush made a major tax code reform a priority in his second term as President. He asked a blue ribbon panel for recommendations and options and was expected to make proposals in the middle of 2005 which Treasury Secretary John Snow would turn into a concrete plan by late that year. But, discussions gave the panel a mandate to focus in particular directions instead of a comprehensive plan.

As of November 19, 2004, the bare outlines of the plan were as follows:

  • A reform of the existing income tax, not a national sales tax.
  • Retain mortgage interest and charitable deductions.
  • Retain at least somewhat progressive tax rates.
  • Revenue neutral.
  • Likely to eliminate the state and local tax deduction.
  • Likely to scrap the employer deduction for health insurance for employees.
  • Likely to favor income from interest, dividends and capitals gains, and to expand tax breaks for business investment.
  • Likely to eliminate the alternate minimum tax.
  • Supposed to be simpler.

Ideas like a Comprehensive Business Income Tax (CBIT) proposed by some of Bush's current tax advisors back in 1992, which might include an elimination of the deduction for interest paid by businesses and the elimination of tax on interest paid by businesses when received, are being discussed.

The Joint Budget Committee of Congress has determined that the President's 2006 budget proposal, which includes making his tax cuts permanent, would reduce federal revenues by $1.55 TRILLION dollars over 10 years.

Analysis

The Blogosphere, including DailyKos, is already deeply involved in the debate, not least of which, because it is one of the only media today well equipped to handle the kinds of detailed policy discussions involved.

The gist of the progressive criticism of proposed tax reform is that it is not appropriate to favor income from property over income from work, that such a regime favors the rich over the poor, that the state and local tax deduction is a principal enshrined in the Declaration of Independence and unduly penalizes those in blue states with higher income taxes, and that we don't need to reduce the incentive to provide health insurance in the midst of a health insurance crisis.

Progressives don't necessarily disagree that the tax system is too complex, but believe that most of the complexities arises out of undeserved tax breaks for monied interests. Progressives also disagree that the current level of tax revenue is appropriate. Unwise Republican tax cuts have led directly to a large budget deficit which amounts to a "birth tax" because it will be paid for by future generations, even though the benefits have gone to the current generation. This revenue shortfall, in the eyes of progressives, should be made up for by those whose tax cuts have created it, corporations and wealthy individuals.

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