Sens. Wyden and Gregg Introduce Tax Reform Bill Sens. Wyden and Gregg view their legislation as a way to address the expiration of the Bush tax cuts at the end of this year. The changes they propose include fiscally responsible middle-class tax cuts, business tax breaks to help American companies compete globally and create jobs and a fairer and simpler tax system for all Americans. Under their approach, they propose a streamlined, one-page 1040 IRS Form to file federal income taxes that most taxpayers will be able to use. In an effort to make paying taxes even simpler, taxpayers will be able to request that the IRS prepare a tax return for them to review, edit and sign. The bill reduces the number of individual tax brackets from six to three—15 percent, 25 percent, and 35 percent—and simplifies the tax code for individuals and families by eliminating the alternative minimum tax (AMT). It nearly triples the standard tax deduction for middle-class and low-income taxpayers reducing the need for many to go through the time and effort of maintaining records and receipts necessary for itemizing deductions. In order to encourage investment, the Wyden-Gregg legislation would exempt taxpayers from paying taxes on the first 35 percent of their long-term capital gains income. To qualify as a long-term gain, investments would have to be held for at least six months for the first $500,000 of capital gains and for at least one year for capital gains after the first $500,000. This will give smaller investors more flexibility than they have now to respond to a volatile investment climate. The bill would also reduce the top corporate tax rate, which can exceed 35 percent and replace the existing six corporate tax rates and eight brackets into one flat corporate tax rate of 24 percent. Wyden and Gregg claim this will cut the U.S. corporate tax rate by nearly 30 percent—improving U.S. competitiveness. According to the Congressional Budget Office, the Wyden-Gregg bill would lose $230 billion in revenue from FY 2010 to FY 2019 compared to the President’s budget, though if Congress were to cut business subsidies, the proposal would be deficit neutral. However, the bill would lose hundreds of billions of dollars compared to current law. Either way, the tax reform would not help decrease the debt. Nonetheless, creating a more efficient tax code and slashing tax expenditures for special interests are worthy and essential goals. An efficient tax system can promote faster economic growth, and can help put the country on a more sustainable fiscal path. The twosome certainly deserves credit for tackling such critical legislation, since it will be extremely difficult to find floor time for this incredibly complex issue especially in an election year. They seem to be part of a select few in Congress that are capable of producing a bipartisan proposal in today’s polarized environment. |