Tax Reform and Deficit Reduction Professor Jon Forman University of Oklahoma Slides for a panel of the Comm. on Tax Policy and Simplification ABA Section.

Tax Reform and Deficit Reduction Professor Jon Forman University of Oklahoma Slides for a panel of the Comm. on Tax Policy and Simplification ABA Section of Taxation Washington, DC May 6, 2011

Overview  The Budget Outlook Short-term Long-term  Taxes The Current Tax System Recent Tax Reform Proposals 2

Short-Term: Projected Budget Totals Budget Totals, $billions20112012-2021 Receipts$2,228$39,084 Outlays$3,708$46,055 Deficit$1,480$ 6,971 Budget Totals, % GDP Receipts14.8%19.9% Outlays24.7%23.5% Deficit9.8%3.6% Public Debt, % GDP69.4%75.3% 3 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021 (January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf

4 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021 (January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf

6 Congressional Budget Office, Four Observations about the Federal Budget (March 7, 2011), at 6 http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf. http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf

13 U.S. Department of the Treasury, Financial Management Service, A Citizen’s Guide to the Financial Report of the United States Government (2009).

14 Congressional Budget Office, The Long-Term Budget Outlook (Revised August 2010), at 5, http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf. http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf

Factors Explaining Future Federal Spending on Medicare, Medicaid, and Social Security (percentage of GDP) Congressional Budget Office, The Long-Term Budget Outlook (June 2009), at 12 (Box 1-2).

Taxes  Overview of the federal tax system  Recent tax reform proposals 16

17 Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System (JCX-1-11), January 18, 2011, at 71, www.jct.gov.www.jct.gov

Proposed Budget Receipts Receipts, $billions20112014 Individual income taxes9981,671 Corporation income taxes279398 Payroll taxes8191,092 Excise taxes7386 Estate and gift taxes1114 Custom duties and other receipts4775 Total receipts2,2283,442 GDP$15,034$17,258 Receipts, % GDP14.8%19.9% 18 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021 (January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf

19 Center on Budget and Policy Priorities, Top Ten Tax Charts (April 14, 2011), http://www.offthechartsblog.org /top-ten-tax-charts/. http://www.offthechartsblog.org /top-ten-tax-charts/

20 Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System (JCX-1-11), January 18, 2011, www.jct.gov.www.jct.gov Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System (JCX-1-11), January 18, 2011, at 70, www.jct.gov.www.jct.gov

21 U.S. Payroll Tax Rates: Selected Years 0 2 4 6 8 10 12 14 16 18 20 1940196019802010 Year Percent paid jointly by employee and employer Medicare Social Security

22 OECD Tax Database, http://www.oecd.org.http://www.oecd.org Tax-to-GDP ratio, 2008

23 Edward D. Kleinbard, Muddling Through the Budget Crisis (January 6, 2011); OECD Tax Database, http://www.oecd.org.http://www.oecd.org

25 Congressional Budget Office, Trends in Federal Tax Revenues and Rates (December 2, 2010), at 10, http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.http://finance.senate.gov/imo/media/doc/120210DEtest.pdf

28 Center on Budget and Policy Priorities, Top Ten Tax Charts (April 14, 2011), http://www.offthecharts blog.org/top-ten-tax- charts/. http://www.offthecharts blog.org/top-ten-tax- charts/

29 Top 10 Income Tax Expenditures, 2012 (Billions) Health insurance exclusion $184 Mortgage interest deduction 99 401(k) plans 68 Step-up of basis at death 61 Exclusion of net imputed rental income 51 Deductible nonbusiness state and local taxes other than on houses 49 Employer plans 45 Charitable contrib. (other than health & education) 43 Capital gains (except agriculture, timber, iron, coal) 38 Exclusion of interest on tax-exempt bonds 37 2012 Federal Budget, Analytical Perspectives, Chapter 17, Tax Expenditures, Table 17-3, http://www.whitehouse.gov/omb/budget/Analytical_Perspectives. http://www.whitehouse.gov/omb/budget/Analytical_Perspectives

31 Office of Management and the Budget, A New Era of Responsibility: Renewing America’s Promise (2009).

32 20 Facts About U.S. Inequality that Everyone Should Know, http://stanford.edu/group/scspi/cgi-bin/facts.php. http://stanford.edu/group/scspi/cgi-bin/facts.php Productivity and Real Income

Rising Poverty 33 U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2009, (Current Population Report No. P60-238, September 2010), http://www.census.gov.http://www.census.gov

Rising Inequality 35

Shares of Total Business Returns and Net Income, 1980-2007 1980199020002007 S Corporations Returns4%8%11%12% Net Income1%8%14% Partnerships Returns11%8% 10% Net Income3% 18%23% Sole Proprietorships Returns69%74%72% Net Income17%26%15%10% C Corporations Returns17%11%9%6% Net Income80%62%53% 38 Internal Revenue Service, Statistics of Income, www.irs.gov/taxstats.www.irs.gov/taxstats

Expired Tax Provisions 2010  First-time homebuyer credit  Making work pay credit  Build America Bonds  Estate and gift tax regime for 2010 39 Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11), January 21, 2011, www.jct.gov.www.jct.gov

Expiring Tax Provisions 2011  Tax credit for research and experimentation expenses  Increased AMT exemption amount  Increase in expensing to $500,000/$2,000,000  Above-the-line deduction for qualified tuition and related expenses  Temporary 2% payroll tax cut 40 Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11), January 21, 2011, www.jct.gov.www.jct.gov

Expiring Tax Provisions 2012  Most 2001 and 2003 tax cuts 35% maximum rate 10% minimum rate $1,000 child tax credit 15% capital gain and dividend rates  Expanded earned income tax credit  American opportunity tax credit  Reduced estate and gift taxes 41 Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11), January 21, 2011, www.jct.gov.www.jct.gov

Recent Tax Reform Proposals  President’s Economic Recovery Advisory Board, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation (August 2010).  National Commission on Fiscal Responsibility and Reform, The Moment of Truth (December 2010).  Bipartisan Policy Center, Restoring America’s Future (November 2010). Co-Chairs: Pete Domenici & Alice Rivlin 43

Recent Tax Reform Proposals  Bipartisan Tax Fairness and Simplification Act of 2011 (2011). Senators Ron Wyden and Dan Coats  Rep. Paul Ryan, The Roadmap Plan (2010).  National Taxpayer Advocate, 2010 Annual Report to Congress (December 31, 2010).  President Obama’s FY2012 Budget 44

Recent Tax Reform Proposals  President Obama, Framework for Shared Prosperity and Shared Fiscal Responsibility (April 13, 2011).  See also: Choosing The Nation’s Fiscal Future (National Research Council & National Academy of Public Administration 2010) The Peterson-Pew Commission on Budget Reform, Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt (2009). 45

Principles of Sound Tax Policy  Simplicity  Transparency  Neutrality  Stability  No Retroactivity  Broad Bases and Low Rates 46 Tax Foundation, The Principles of Sound Tax Policy, http://www.taxfoundation.org/publications/show/25982.html. http://www.taxfoundation.org/publications/show/25982.html

47 More Principles of Sound Tax Policy  Distribution matters A just distribution of economic resources Intergenerational justice/ Deficits  Behavioral consequences matter Encourage work and savings Marriage penalties and bonuses Keep effective rates as low as possible Growth and a stronger dollar

48 Tax Base  Income  Consumption  Earnings  Wealth

PERAB: Simplification Options  Simplification for Families Consolidate Family Credits and Simplify Eligibility Rules Simplify and Consolidate Tax Incentives for Education 49 PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation, http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf. http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf

PERAB: Simplification Options  Simplify Savings and Retirement Incentives Consolidate Retirement Accounts Integrate IRA and 401(k)-type Contribution Limits and Disallow Nondeductible Contributions Consolidate Non-Retirement Savings Reduce Retirement Account Leakage Simplify Taxation of Social Security 50 PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation, http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf. http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf

PERAB: Simplification Options  Simplify Taxation of Capital Gains Harmonize Rules and Tax Rates for Long-Term Capital Gains Simplify Capital Gains Tax Rate Structure Limit or Repeal Section 1031 Like-Kind Exchanges Capital Gains on Principal Residences 51 PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation, http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf. http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf

PERAB: Simplification Options  Simplify Tax Filing The Simple Return Data Retrieval Raise the Standard Deduction and Reduce the Benefit of Itemized Deductions  Simplification for Small Business  The Alternative Minimum Tax 52 PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation, http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf. http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf

PERAB: Compliance Options  Dedicate More Resources to Enforcement and Enhance Enforcement Tools  Increase Information Reporting and Source Withholding  Clarify the Definition of a Contractor 53 PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation, http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf. http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf

PERAB: Corporate Tax Reform  Reduce Marginal Corporate Rates  Broaden the Corporate Tax Base  Eliminate or Reduce Tax Expenditures Eliminate the Domestic Production Deduction Eliminate or Reduce Accelerated Depreciation Eliminate Other Tax Expenditures 54 PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation, http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf. http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf

PERAB: International Corporate Tax Issues  Option 1: Move to a Territorial System  Option 2: Move to a Worldwide System with a Lower Corporate Tax Rate  Option 3: Limit or End Deferral with the Current Corporate Tax Rate  Option 4: Retain the Current System but Lower the Corporate Tax Rate 55 PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation, http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf. http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf

President’s Fiscal Commission  Co-chairs: Alan Simpson & Erskine Bowles  Designed to raise 21% of GDP  Individual tax rates of 12, 22, and 28%  Eliminate the AMT  Eliminate the phase-out of personal exemptions & limits on itemized deductions  Eliminate itemized deductions but retain standard deduction & personal exemptions  Tax capital gains & dividends as ordinary income 56 The National Commission on Fiscal Responsibility and Reform, The Moment of Truth (December 2010), http://www.fiscalcommission.gov; Tax Policy Center, http://www.taxpolicycenter.org.http://www.fiscalcommission.govhttp://www.taxpolicycenter.org

President’s Fiscal Commission  Eliminate tax expenditures except: child credit and earned income tax credit mortgage interest deduction—replace with 12% credit; $500,000 mortgage cap cap and phase out the exclusion for employer-sponsored health care charitable giving deduction—replace with 12% credit for contributions over 2% AGI 57 The National Commission on Fiscal Responsibility and Reform, The Moment of Truth (December 2010), http://www.fiscalcommission.gov.http://www.fiscalcommission.gov

President’s Fiscal Commission  Eliminate tax expenditures except: exclusion of interest on state and municipal bonds—tax interest only on newly-issued bonds retirement savings—maintain basic preferences, but consolidate retirement accounts and cap annual tax-preferred contributions at lower of $20,000 or 20 percent of income; expand savers’ credit defined benefit pensions 58 The National Commission on Fiscal Responsibility and Reform, The Moment of Truth (December 2010), http://www.fiscalcommission.gov.http://www.fiscalcommission.gov

President’s Fiscal Commission  Eliminate corporate tax expenditures & reduce corporate tax rate to 28%  Territorial tax system for active foreign-source income  Increase Social Security taxable wage base to 90% of wages, by 2050  Increase the gasoline excise tax on gasoline by 15¢ per gallon 59 The National Commission on Fiscal Responsibility and Reform, The Moment of Truth (December 2010), http://www.fiscalcommission.gov.http://www.fiscalcommission.gov

Bipartisan Policy Center  Co-Chairs: Pete Domenici & Alice Rivlin  one-year payroll tax holiday in 2011 to help stimulate economic recovery  individual tax rates: 15% on the 1st $50,000 of taxable income ($100,000 for married couples, 27% on excess  eliminate the AMT 60 Bipartisan Policy Center, Restoring America’s Future (November 2010), http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf. http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf

Bipartisan Policy Center  Eliminate tax expenditures: exclusion from tax of the inside buildup of life insurance and deferred annuities credits and deductions for higher education expenses credit for child & dependent care exclusion from income of benefits under Section 125 cafeteria plans foreign earned income exclusion 61 Bipartisan Policy Center, Restoring America’s Future (November 2010), http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf. http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf

Bipartisan Policy Center  Exempt the first $1,000 of net long- term gains from taxation (indexed for inflation) tax any additional long-term gains and all qualified dividends as ordinary income include in income unrealized capital gains at death  Cap and phase out the exclusion for employer-sponsored health care 62 Bipartisan Policy Center, Restoring America’s Future (November 2010), http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf. http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf

Bipartisan Policy Center  Eliminate deduction for state and local taxes  Replace charitable contributions and mortgage interest deductions with 15% refundable credits  Retain medical deduction 63 Bipartisan Policy Center, Restoring America’s Future (November 2010), http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf. http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf

Bipartisan Policy Center  Replace the standard deduction, personal exemptions, head of household filing status, the child tax credit, and the earned income tax credit with two refundable credits: $1,600 for each dependent child an earnings credit equal to 21.3 percent of the first $20,300 of earnings 64 Bipartisan Policy Center, Restoring America’s Future (November 2010), http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf. http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf

Bipartisan Policy Center  Tax all Social Security benefits, eliminate the elderly credit & provide 2 new credits: 7.5% of Social Security benefits 15% of the current standard deduction for individuals age 65 or older  Increase Social Security taxable wage base to 90% of wages 65 Bipartisan Policy Center, Restoring America’s Future (November 2010), http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf. http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf

Bipartisan Policy Center  Impose a 6.5% broad-based consumption tax  Impose an excise tax 1¢/ounce on sugar-sweetened beverages  Raise the excise tax on alcoholic beverages to 25¢/ounce  Estate tax: $3.5 million exemption and 45% maximum tax rate 66 Bipartisan Policy Center, Restoring America’s Future (November 2010), http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf. http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf

Bipartisan Policy Center  Corporate taxes reduce the corporate rate to 27% eliminate many tax expenditures:  domestic production deduction  research and experimentation credit  accelerated depreciation for rental housing retain deferral of income for controlled foreign corporations 67 Bipartisan Policy Center, Restoring America’s Future (November 2010), http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf. http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf

Wyden-Coats Tax Act  Like the Tax Reform Act of 1986  Individuals top tax rate of 35% standard deduction of $15,000 ($30,000 for couples) repeal AMT 35% exclusion for capital gains and qualified dividends eliminate lots of tax breaks 68 Senator Ron Wyden, The Bipartisan Tax Fairness and Simplification Act of 2011 (2011), http://wyden.senate.gov/issues/legislation/details/?id=fb5b603a-ed94-48a8-8ff1-c220c1052b3f. http://wyden.senate.gov/issues/legislation/details/?id=fb5b603a-ed94-48a8-8ff1-c220c1052b3f

Wyden-Coats Tax Act  Corporate & business replaces the graduated corporate rate structure with a flat rate of 24% eliminates many business tax breaks allow unlimited expensing of equipment and inventories for small businesses 69 Senator Ron Wyden, The Bipartisan Tax Fairness and Simplification Act of 2011 (2011), http://wyden.senate.gov/issues/legislation/details/?id=fb5b603a-ed94-48a8-8ff1-c220c1052b3f. http://wyden.senate.gov/issues/legislation/details/?id=fb5b603a-ed94-48a8-8ff1-c220c1052b3f

Rep. Ryan’s Roadmap  Designed to raise 19% of GDP  Pay income taxes through existing law, or  Through a highly simplified code with virtually no tax breaks 10% on the first $50,000 ($100,000 for couples), 25% on the rest $39,000 standard deduction & personal exemptions for a family of 4 70 Paul Ryan, The Roadmap Plan (2010), http://www.roadmap.republicans.budget.house.gov.http://www.roadmap.republicans.budget.house.gov

Rep. Ryan’s Roadmap eliminate the AMT eliminate taxes on interest, capital gains, and dividends  Eliminate the estate tax  Replace the corporate income tax with a border-adjustable business consumption tax of 8.5%  See also House Committee on Budget, The Path to Prosperity (2011) 71 Paul Ryan, The Roadmap Plan (2010), http://www.roadmap.republicans.budget.house.gov.http://www.roadmap.republicans.budget.house.gov

National Taxpayer Advocate  Repeal the AMT  Consolidate the family tax provisions  Improve other provisions relating to taxation of the family unit  Consolidate education savings incentives  Consolidate retirement savings incentives 72 National Taxpayer Advocate, 2010 Annual Report to Congress (December 31, 2010), http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report. http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report

National Taxpayer Advocate  Simplify worker classification determinations  Eliminate (or reduce incentives for lawmakers to enact tax sunsets  Eliminate (or simplify) phase outs  Streamline the penalty regime 73 National Taxpayer Advocate, 2010 Annual Report to Congress (December 31, 2010), http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report. http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report

President Obama: Reform Corporate & Individual Tax  “I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years – without adding to our deficit. It can be done.”  “In fact, the best thing we could do for all Americans is to simplify the individual tax code. This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them.” 74 Text of President Barack Obama’s State of the Union Address, http://www.politico.com/news/stories/0111/48181.html. http://www.politico.com/news/stories/0111/48181.html

President Obama’s 2012 Budget  Extend the Earned Income Credit  Expand the Dependent Care Credit  Extend American Opportunity Credit  Tax Dividends and Net Long-Term Capital Gains at a 20-Percent Rate for Upper-Income Taxpayers  Reduce the Value of Certain Tax Expenditures for Upper-Income 75 U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (February 2011), http://www.treasury.gov/.http://www.treasury.gov/

 Enhance and Make Permanent the Research and Experimentation (R&E) Tax Credit  Reform & Extend Build America Bonds  Reform Treatment of Financial Institutions and Products  Reinstate Superfund Taxes  Reform U.S. International Tax System 76 President Obama’s 2012 Budget U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (February 2011), http://www.treasury.gov/.http://www.treasury.gov/

President Obama’s 2012 Budget  Eliminate Oil and Gas Preferences  Eliminate Coal Preferences  Expand Information Reporting  Improve Compliance by Businesses Require Greater Electronic Filing Worker Classification  Strengthen Tax Administration  Expand Penalties 77 U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (February 2011), http://www.treasury.gov/.http://www.treasury.gov/

President Obama’s Framework for Shared Prosperity and Shared Fiscal Responsibility 78 The White House, http://www.whitehouse.gov/winning-the-future/fiscal-framework.http://www.whitehouse.gov/winning-the-future/fiscal-framework

President Obama’s Framework: another 12-year estimate: $5.3T  Restore high-bracket tax rates to Clinton-era levels: $1T  Cut tax-expenditure spending through the tax code: $1T  Cut health care spending: $0.5T  Cut other mandatory spending by: $0.4T  Cut security spending: $0.4T  Cut non-security discretionary spending: $0.8T  Those reductions will carry with them a reduction in net interest of: $1.2T 79 Brad DeLong, http://delong.typepad.com/sdj/2011/04/the-obama-deficit-reduction- framework.html.http://delong.typepad.com/sdj/2011/04/the-obama-deficit-reduction- framework.html

President Obama’s Framework: Tax Reform  $3 of spending cuts and interest savings for every $1 from tax reform that contributes to deficit reduction  comprehensive tax reform to produce a system which is fairer, has fewer loopholes, less complexity, and is not rigged in favor of those with lawyers and accountants to game it. 80 The White House, Fact Sheet: The President’s Framework for Shared Prosperity and Shared Fiscal Responsibility (April 13, 2011), www.whitehouse.gov.www.whitehouse.gov

President Obama’s Framework: Tax Reform  Would not extend the Bush tax cuts for the wealthiest Americans  Builds on the Fiscal Commission’s goal of reducing tax expenditures to both lower rates and lower the deficit  Corporate tax eliminate loopholes reduce distortions lower the corporate tax rate 81 The White House, Fact Sheet: The President’s Framework for Shared Prosperity and Shared Fiscal Responsibility (April 13, 2011), www.whitehouse.gov.www.whitehouse.gov

Consumption Tax Options  Progressive Personal Consumption Tax  Subtraction method Value Added Tax Treasury Department proposal for Business Activity Tax (BAT)  Credit-method (European) VAT  National retail sales tax (RST) 82 Charles E. McClure, Jr., Why the United States Needs a Value Added Tax (2009), http://www.taxadmin.org/Fta/meet/09am/papers/McClure.pdf. http://www.taxadmin.org/Fta/meet/09am/papers/McClure.pdf

Earlier Tax Reform Proposals  President’s Advisory Panel on Tax Reform, Final Report (2005), http://govinfo.library.unt.edu/taxrefo rmpanel. http://govinfo.library.unt.edu/taxrefo rmpanel  U.S. Treasury Department, The President's Tax Proposals to the Congress for Fairness, Growth, and Simplicity (1985). 84

Earlier Tax Reform Proposals  U.S. Treasury Department, Tax Reform for Fairness, Simplicity, and Economic Growth: The Treasury Department Report to the President (3 volumes, 1984).  David Bradford and the U.S. Treasury Tax Policy Staff, Blueprints for Tax Reform (Arlington, VA: Tax Analysts. 2nd ed. 1984). 85

86 Conclusion  President needs 60 votes in the Senate and cooperation in the House The whole tax system is in play  And will be in play for years Lobbyists will be tripping over each other  Change is almost always incremental

Sources  The President’s Economic Recovery Advisory Board, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation (August 2010), http://www.whitehouse.gov. http://www.whitehouse.gov  The National Commission on Fiscal Responsibility and Reform, The Moment of Truth (December 2010), http://www.fiscalcommission.gov. http://www.fiscalcommission.gov  The Bipartisan Policy Center Debt Reduction Task Force, Restoring America’s Future: Reviving the Economy, Cutting Spending and Debt, and Creating a Simple, Pro- Growth Tax System (November 2010), http://bipartisanpolicy.org. http://bipartisanpolicy.org 87

Sources  Senators Ron Wyden & Dan Coats, Bipartisan Tax Fairness and Simplification Act of 2011 (2011), http://wyden.senate.gov/issues/legislation/details/?id=f b5b603a-ed94-48a8-8ff1-c220c1052b3f. http://wyden.senate.gov/issues/legislation/details/?id=f b5b603a-ed94-48a8-8ff1-c220c1052b3f  Representative Paul Ryan, The Roadmap Plan (2010), http://www.roadmap.republicans.budget.house.gov. http://www.roadmap.republicans.budget.house.gov  House Committee on Budget, The Path to Prosperity: Restoring America’s Promise (2011), http://budget.house.gov/UploadedFiles/PathToProsperity FY2012.pdf. http://budget.house.gov/UploadedFiles/PathToProsperity FY2012.pdf  Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System (JCX-1-11), January 18, 2011, www.jct.gov.www.jct.gov 88

Sources  National Taxpayer Advocate, 2010 Annual Report to Congress (December 31, 2010), http://www.taxpayeradvocate.irs.gov/Media- Resources/Annual-Report-To-Congress-Full-Report. http://www.taxpayeradvocate.irs.gov/Media- Resources/Annual-Report-To-Congress-Full-Report  Office of Management and Budget, 2012 Federal Budget, http://www.whitehouse.gov/omb/budget. http://www.whitehouse.gov/omb/budget  The White House, Fact Sheet: The President’s Framework for Shared Prosperity and Shared Fiscal Responsibility (April 13, 2011), www.whitehouse.gov.www.whitehouse.gov  Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11), January 21, 2011, www.jct.gov. www.jct.gov 89

Sources  The Tax Policy Center, Deficit Reduction Proposals, http://www.taxpolicycenter.org/taxtopics/Deficit- Reduction-Proposals.cfm. http://www.taxpolicycenter.org/taxtopics/Deficit- Reduction-Proposals.cfm  Joshua Rosenberg, The U.S. Fiscal Trajectory: Causes and Consequences (January 21, 2011), http://www.abanet.org/tax/MID11/papers/Rosenberg- slidesABA-Boca-Rosenberg.pdf. http://www.abanet.org/tax/MID11/papers/Rosenberg- slidesABA-Boca-Rosenberg.pdf 90 U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals (February 2011), http://www.treasury.gov/.http://www.treasury.gov/

About the Author  Jonathan Barry Forman (“Jon”) is the Alfred P. Murrah Professor of Law at the University of Oklahoma College of Law and the author of Making America Work (Washington, DC: Urban Institute Press, 2006).  Jon was the Professor in Residence at the Internal Revenue Service Office of Chief Counsel, Washington, DC, for the 2009-2010 academic year.  Jon can be reached at jforman@ou.edu, 405-325-4779, www.law.ou.edu/faculty/forman.shtml.jforman@ou.edu www.law.ou.edu/faculty/forman.shtml  These slides are available at http://jay.law.ou.edu/faculty/jforman/Speeches/2011A BA-TAX-forman.ppt. http://jay.law.ou.edu/faculty/jforman/Speeches/2011A BA-TAX-forman.ppt 91

Tax Reform and Deficit Reduction Professor Jon Forman University of Oklahoma Slides for a panel of the Comm. on Tax Policy and Simplification ABA Section.

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Tax Reform and Deficit Reduction Professor Jon Forman University of Oklahoma Slides for a panel of the Comm. on Tax Policy and Simplification ABA Section.

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Presentation on theme: "Tax Reform and Deficit Reduction Professor Jon Forman University of Oklahoma Slides for a panel of the Comm. on Tax Policy and Simplification ABA Section."— Presentation transcript:

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