Wednesday, February 26, 2014

New House GOP tax reform plan drops tax rates, popular deductions

Wonkblog wrote New House GOP tax reform plan drops tax rates, popular deductions and also Understand the House GOP tax-reform proposal in four simple charts.

Jared Bernstein evaluated it in The Promise and Pitfalls in a Tax Reform Plan.

"The bill has some worthy aspirations, and he bravely throws some treasured loopholes, like “carried interest,” by the wayside. The plan significantly lowers the cap on the amount of mortgage interest that homeowners can deduct (a tax break that skews heavily toward the wealthy). It includes an excise tax on large banks to offset the implicit subsidy these institutions enjoy by dint of being too big to fail. It pegs tax brackets to a price index that grows more slowly, meaning more income will pass into higher brackets than is now the case. Though the politics of tax reform is extremely cramped — even some of Mr. Camp’s fellow Republicans are saying his proposal isn’t going anywhere — it may prove to be a useful starting point for negotiations down the road.

But in its current incarnation, the plan is fundamentally flawed. First, it claims to be revenue neutral, but achieves that goal only with timing gimmicks that ensure that its revenue neutrality will not last. Second, revenue neutrality is itself a recipe for an unsustainable budget path."

Berstein says: "First, bracket complexity is largely an illusion. Regardless of the number of brackets, it’s simple these days to figure out what you owe, once you define your taxable income, and that’s where the complexity comes in. And from what I can see, there’s still lots of that sort of complexity in the Camp plan (for example, see the definition of income that gets hit with the surcharge: adjusted gross income minus many different income sources). You don’t simplify the code by reducing the number of brackets; you do so by not favoring one type of income over another."

All though that seems to be at odds with Wonkblog: "Tax-filing season would also be much easier for most households, with 95 percent of filers likely to claim a new expanded standard deduction and call it a day. However, all that simplicity comes at the cost of hundreds of credits and deductions that have been woven into the American way of life. There would be no more personal exemptions for you, your spouse and your dependents; no more credit for child care; no more deductions for medical bills or for state and local taxes."

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