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Reorming Our Tax System,Reducing Our Defcit
Roger Altman, William Daley, John Podesta, Robert Rubin, Leslie Samuels,Lawrence Summers, Neera Tanden, and Antonio Weiss
with Michael Ettlinger, Seth Hanlon, Michael Linden
December 2012
www.americanprogress.o
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Reorming Our Tax System,Reducing Our DefcitRoger Altman, William Daley, John Podesta, Robert Rubin, Leslie Samuels,
Lawrence Summers, Neera Tanden, and Antonio Weisswith Michael Ettlinger, Seth Hanlon, Michael Linden
December 2012
Noe om he auhors: As in any collaboraive process, here has been much give
and ake among he paricipans in developing his nal produc. We all subscribe o
he analysis and principles ariculaed here, o he need or revenue levels a he levelproposed, and o he need or spending reducions. We also generally agree wih he
provisions o he plan. Tere may be specic maters, however, on which some o us
have diferen views.
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Contents 1 Introduction and summary
5 On the need or more revenue
6 Why the additional revenue must come from high-income households
9 A progressive tax reorm
11 Tax rates
12 Cleaning up the tax code
15 Simplifying filing
16 Other taxes
17 The spending side o the equation
20 Bottom line
22 About the authors
24 Acknowledgements
25 Endnotes
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Introduction and summary | .americanprogress.
Introduction and summary
Tere are very ew hings everyone in Washingon can agree on hese days. Bu
he one noion ha will ge heads nodding across he poliical specrum is ha
odays scal policies simply are no susainable. I we keep doing wha weve
been doing, no only will he ederal budge say permanenly deep in he red bu
criical public invesmens such as educaion and inrasrucure will coninue o
go underunded. Key naional prioriies such as srenghening he middle class,
reducing povery, and building a world-class inrasrucure will remain unad-
dressed. Income inequaliy will coninue o rise, condence in Americas abiliyo govern is scal aairs will coninue o all, and sooner or laer we will nd our-
selves sruggling hrough anoher economic crisis. Clearly, hese are all oucomes
ha we mus avoid. Ta is why nearly everyonele, righ, and ceneragrees
ha changes in scal policy will be necessary.
Te nonparisan Congressional Budge Oce esimaes ha i we do no change
course, annual ederal budge decis will never drop below $800 billion. ax
revenues will cover only 80 percen o ederal spending, which means we will have
o borrow 20 cens or every dollar we spend. As a resul, publicly held deb, mea-
sured as a share o our naional economy, will rise rom abou 73 percen oday o
nearly 90 percen by he end o he decade, according o curren projecions.1
Ta is a budge rajecory raugh wih serious risk. No one knows wih precision
when our deb levels will become so burdensome ha hey rigger severe eco-
nomic consequences. Bu here are ew who would disagree ha such a level does
exis, and ha we would do well o avoid nding ou exacly wha ha level is. For
ha reason, budge expers and economiss rom all perspecives agree wih he
goal o prevening such a reacherous rise in he deb-o-GDP raio.
o do so does no require radically decreasing our decis immediaely as we con-
inue o recover rom he Grea Recession o 20072009. Insead our goal should
be o reduce our deci o sabilize he deb-o-GDP raio a a responsible level in
he medium erm. We can achieve his by lowering our annual budge decis o a
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2 Center or American Progress | Reorming Our Tax System, Reducing Our Deicit
level where any new deb incurred in a given year is smaller han overall economic
growh ha year. Under normal economic condiions, his means decis o
approximaely 3 percen o GDP or lower. Tough sill lower decis are desirable
when he economy is a ull employmen and operaing a poenial GDP, geting
decis under 3 percen o GDP would address he mos pressing concern in he
medium erm and pu he budge on a sound ooing.
Accomplishing ha criical goal is going o be dicul. Deci reducion is always
hardaer all, i means cuting back on public services and programs ha are
imporan o he naion, and i means raising axes.
Tis repor oers a plan o achieve meaningul deci reducion over he nex 10
years ha ress on wo pillars:
Progressive, revenue-enhancing, ecien, simpli ying, and pragmaic ax reorm
Pragmaic spending cus ha do no undermine he middle class, he poor, or seniors
Firs, we should recognize our revenue problem. Repeaed ax cus played an
ousized role in creaing he budge decis o he las decade and hey have hur
our counry. As Oliver Wendell Holmes said, axes are wha we pay or civilized
sociey. Tey pay or he oundaional public invesmens ha are criical o a
modern prosperous sociey, such as inrasrucure, educaion, and basic scienic
research. Tey pay or services ha only he governmen can eecively perorm,
such as naional deense and ensuring clean ood, sae consumer producs, and
clean waer. axes make i possible or us o mee our socieal obligaion o care
or our veerans, our aged, and our impoverished. And axaion allows us o over-
come naional challenges and achieve exraordinary eas. Apollo 11, he Hoover
Dam, and he Inerne were all nanced wih ax revenues.
Curren ederal revenue levels are a heir lowes levels since he 1950s. And he
assumpion ha all o he ax cus scheduled o expire a he end o his year will
coninue is he single-larges reason why budge expers expec ederal decis o
remain ar oo high over he nex 10 years.2 Clearly we have a big revenue problem.
When hinking abou where he revenue we need should come rom, he saringpoin should be ha our ax sysem mus be progressive. From Adam Smih down
o oday, i has been a long-recognized principle ha hose wih higher incomes
should pay a higher share o heir income in axes because hey have he abiliy o
pay and have beneed he mos.3
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Introduction and summary | .americanprogress.
Aer all, no one disagrees ha, o ake a hypoheical example, a 10 percen ax on
a amily making $50,000 has a ar greaer impac on he lie o ha amily han a 10
percen ax on a amily making $5 million. And hose a he op o he income lad-
der bene signicanly rom our civil sociey, public invesmens, he proecions
axes pay or, and all our naion provides. Is only air ha he beter o be asked
o pay a larger share o he bill.
And, in ac, our ax sysem is progressive. Bu over he las several decades, he
rend has been o ask less and less o hose a he op. Te very highes-income
households have enjoyed subsanial ax cus, even as heir incomes have risen:
From 1979 o 2007, or example, he preax incomes o he op 1 percen more
han ripled, while heir ax raes declined by abou one-h.4 And while, on aver-
age, higher-income Americans do pay higher ederal ax raes han middle-income
Americans, here are oo many high-income households or whom ha general
rule does no apply.
Finally, i is imporan o remember ha he ederal income ax is only one piece
o a larger naional ax sysem. Mos o he oher piecesexcise axes, payroll
axes, sae and local axesask much less o high-income households han hey
do o low- and moderae-income households. aken ogeher, our naional ax
sysem is already less progressive han i migh appear, which is one reason why is
so imporan or he ederal income ax o be subsanially progressive.5
In addiion o concerning ourselves wih progressiviy as we address he need o
raise more revenue, we should also address he ac ha he curren ax code is
oo complex. I conains oo many narrowly argeed special ineres breaks. In
some cases hese special preerences creae economic ineciencies ha can no
longer be jusied. Tey also erode Americans aih ha he ax code is reaing
everyone airly.
Our ax reorm plan addresses hese ailings. Firs and oremos, i would redesign
he income ax code so ha i will generae adequae levels o revenue o mee
our crucial scal goals. Over he nex 10 years, our ax reorm would pu us on a
sronger scal ooing by raising $1.8 rillion and, by he end o he decade, mach-
ing he overall levels o revenue proposed by scal commission co-chairs AlanSimpson and Erskine Bowles as par o heir biparisan deci reducion plan.
Tough hese proposed revenue levels will likely be insucien or he counrys
long-erm needs, hey are enough o do he job in he medium erm. And given
heir biparisan pedigree, hey provide a realisic arge.
The very highesincome househ
have enjoyed
substantial tax
cuts, even as the
incomes have ri
From 1979 to 20
or example, the
pretax incomes
the top 1 percen
more than triple
while their tax ra
declined by abo
one-th.
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4 Center or American Progress | Reorming Our Tax System, Reducing Our Deicit
Our ax plan would raise his revenue in a progressive way, asking hose in
he op income brackes o pay more. On average, households making less
han $100,000 would pay a litle less han hey do now, hose making beween
$100,000 and $250,000 would see only iny increases, and he ax hikes up o
$500,000 would be small.
Our reorm would also simpliy he ling process and sreamline he code so ha
everyone could rus ha each axpayer is being reaed airly. I does his by urning
cerain deducions ha currenly avor hose in he highes ax brackes ino cred-
is ha will besow equal benes. Our plan would ax dieren sources o income
much more equally han he curren code does. I would remove he alernaive
minimum ax, repeal oher provisions ha add complexiy, eliminae unjusied ax
loopholes, and reduce he number o axpayers who would have o iemize.
O course deci reducion will no be limied o ax reorm. Spending reorm will
also be necessary. I is imporan o noe ha he ederal governmen has alreadycu spending subsanially. In he las wo years, Presiden Barack Obama has
signed ino law $1.5 rillion in spending cus over he nex decade.6 We propose
hundreds o billions o dollars in addiional spending savings ha can be achieved
wihou reducing reiremen or healh benes, wihou shredding he social
saey ne, and wihou urher disinvesing in Americas uure.
Te resul is a comprehensive deci reducion plan ha will subsanially reduce
our uure decis, se he budge on a sound course or he coming decade, and
bring our deb-o-GDP raio below 72 percen by 2022.
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On te need or more revenue | .americanprogress.
On the need for more revenue
Our ederal ax code is ailing a is mos imporan and basic ask: raising
adequae revenues o und he services and operaions o governmen. Over he
las our years, he eecs o repeaed ax cus and a weak economy combined o
produce he lowes levels o ederal revenue, measured as a share o our naional
economy, in nearly six decades. I we keep he curren ax code he way i is oday,
ederal revenues will say ar below ederal spending levelseven wih signican
spending cusor he nex decade and beyond, producing unsusainable and
evenually dangerous levels o deb. Te ax code needs o be reormed so ha igeneraes higher revenues.
According o Congressional Budge Oce projecions, mainaining odays ax
code will resul in revenues averaging abou 18 percen o gross domesic produc
over he nex decade. From 1998 o 2001he las years in which we had bal-
anced budgesrevenues averaged abou 20 percen o GDP. And in he inerven-
ing years, our populaion has aged, baby boomers have sared o reire, healh care
coss have risen, and our naional securiy needs have changed dramaically.
O course sabilizing our publicly held deb and seting i on a downward rajec-
ory will cerainly require spending reducions in addiion o new revenues. Bu
because he revenues generaed by our curren ax code are so inadequae, o
accomplish ha goal enirely hrough spending cus would require cubacks o
such a magniude ha, because o he economic damage and human suering hey
would cause, hey would simply be bad policy -- and, or good reason, poliically
unpopular. Domesic discreionary spendingwhich includes mos o wha
governmen does ouside o he miliary and he big enilemen programs such
as Social Securiyis already se o drop o levels lower han a any ime since he
caegory was creaed in 1962.
In ac, nearly all independen expers and biparisan commissions on deci
reducion have come o he same conclusion. Te mos well-known o hese
eorshe plan ha came ou o he 2010 biparisan scal commission
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(Simpson-Bowles)recommended addiional revenue o approximaely $2.2
rillion over he nex 10 years.7 Under heir plan revenues would reach abou 19.6
percen o GDP by 2017 and 20.3 percen o GDP by 2021. Revenues a ha level,
combined wih spending cus, produce ederal budges ha avoid piling on deb a
a rae aser han overall economic growh.
While he Simpson-Bowles levels o revenue are cerainly higher han he level o
revenues we see oday and higher han he levels over he pas decade, hey would
sill be below hose o he lae 1990s. And hey would no be enough o ully bal-
ance he budge, nor o allow he counry o boos criical invesmens.
Neverheless, jus as here are many who would argue hese levels are oo low,
given he needs o he counry, he changing demographics, and rising healh
care coss, here are also hose who would argue hese levels are oo high. Te
Simpson-Bowles levels are a middle ground beween hose wo camps, as bes
a biparisan compromise. For he plan described below, we adop as our long-erm revenue arge he Simpson-Bowles revenue level o 20.3 percen o GDP by
2021no because we embrace i as ideal bu because, as a biparisan compro-
mise, i is realisic.
Why the additional revenue must come from high-income
households
Generaing addiional revenue is clearly a necessary componen o any pracical
plan o address our medium- and long-erm budge challenges. Bu simply hi-
ing a revenue arge isn enough. I also maters a grea deal how ha revenue is
raised, and rom whom.
Over he las 30 years, income inequaliy has skyrockeed. From 1979 o 2007
he average household income among he op 1 percen grew by more han 266
percen, adjused or infaion. Over he same period, he average household in he
middle o he income disribuion saw is income rise abou one-sevenh as as.8
Even as hose a he op gained, heir ederal ax raes shrunk. In he middle o he1990s, a household in he op 1 percen could expec o pay abou 35 percen o
heir income in ederal axes. Over he nex decade, ha rae ell seadily unil, by
2007, heir average ax rae was down o jus more han 28 percen.9
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On te need or more revenue | .americanprogress.
Ideally, no one would have o pay higher axes, bu i we do need o raise new
revenueand we dohen i is reasonable ha i rs should come rom hose
who can mos aord i and who have beneed he mos economically. And wih
growing incomes and alling ax raes, hose a he very op o he income ladder
can cerainly aord o pay a bi more.
Criics will conend ha raising axes on hose wih high incomes will depress eco-
nomic growh. Some o he more aggressive proponens o his view will even go so
ar as o say ha raising axes won generae even a single new dollar in revenue on
ne because he economic drag will be so large. Tis noionha higher axes or
higher earners are bad or he broader economyhas some undersandable basis in
heory. Aer all, i is no hard o see how a 100 percen ax rae on income above a
cerain hreshold would resul in dramaically reduced economic aciviy.
Te evidence ha his eec exends down o raes much lower han 100 percen,
however, is ar less persuasive. In ac, he vas preponderance o evidence suggessha ax raes a or near heir recen levels are signicanly below where hey would
need o be o have any measurable economic eecs.10
Indeed, he real-world experience o raising axes on hose wih higher incomes
in he 1990s and cuting hem in he 2000s srongly suppors he view ha
higher axes or hose a he opin he range seen in he Unied Saes in recen
decadesdon depress growh, and lower axes don spur i. In 1993 when
Presiden Bill Clinon raised axes on he op income earners, his opponens
argued loudly ha such ax hikes would mean economic decline, wih some even
promising lower ax revenues as a resul. Needless o say, hey were proven wrong
in specacular ashion wih he longes period o economic growh in U.S. hisory,
increased business invesmen, 23 million jobs added, and, o course, budge sur-
pluses.11 Eigh years laer, Presiden Bush promised ha his ax cus would spark
an economic boom. Ta boom never maerialized, bu renewed large decis did.
In addiion o he clear hisorical record, sudy aer sudy has ound no relaion-
ship beween deci-nanced ax cus and economic growh.12
Raising new revenue is criically imporan o he scal and economic healh o
he naion. I is equally imporan o raise new revenue in a air and ecien way.Wih income inequaliy on he rise and a decade-long rend o lower axes or
hose wih he highes incomes, here can be no doub ha any addiional revenue
mus rs come rom hose a he op o he income ladder.
Indeed, the real
world experienc
o raising taxes o
those with high
incomes in the
1990s and cuttin
them in the 200
strongly suppor
the view that
higher taxes or
those at the top
in the range see
the United State
recent decades
dont depress
growth, and low
taxes dont spur
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A progressive tax reorm | .americanprogress.
A progressive tax reform
Our plan o reorm he ederal individual income ax will raise adequae rev-
enues progressively while making he ax sysem more ecien, simple, air,
and comprehensible. Under our plan, by he middle o he end o his decade,
ederal revenues will mach hose revenue levels recommended by he Simpson-
Bowles plan. (see Figure 1)
Tis increase is accomplished while cuting
axes or all income groups wih annual incomes
less han $500,000, relaive o wha hey wouldpay under he ax code ha becomes law on
January 1, 2013ha is, relaive o so-called
curren law. Relaive o he ax code in eec in
2012curren policyhere are ax reduc-
ions on average or hose wih incomes less
han $100,000 per year, iny increases on hose
wih incomes rom $100,000 o $250,000, and
small increases on hose wih incomes rom
$250,000 o $500,000. By reorming our ax
sysem in a progressive manner, we raise needed
revenue and reduce aer-ax income inequaliy.
(see able 1 on page 11)
Te key eaures o our plan are:
A op marginal ax rae or he personal income ax o 39.6 percen as i was
under Presiden Clinon A op marginal ax rae o 28 percen on capial gains as i was under Presiden
Ronald Reagan and hroughou much o he 1990s Convering ax deducions o ax credis Closing ax loopholes Simpliying he ax sysem by reducing he number o lers who iemize, repeal-
ing he Alernaive Minimum ax, and oher reorms
FIGURE 1
Revenue, as a share o GDP, 2012-2022
Current lawSimpson-Bo
CAP plan
Obama Budg
Current polic
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
25%
2012 2014 2016 2018 2020 2022
Source: CBO, Moment o Truth Project, Center or American Progress calculations.
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Personal exemptions, standard deduction, itemized deductions:
Replaced with a standard credit ($5,000 or couples and $2,500 or
singles) and 18 percent itemized credits, except charitable contributions
would generally receive an itemized credit o up to 28 percent. Taxpay-
ers would have the choice o claiming the standard credit or itemized
credits. The impact o the eective reduction o the mortgage interest
tax preerence or those in higher tax brackets is phased in over time.
Dependent exemption: Replaced with an expanded child tax credit
o $1,600. Child credit is reundable under todays rules and the
phaseout point is lited to $200,000. A $600 nonreundable credit is
available or nonchild dependents.
Capital gains and dividends: Tax capital gains at a maximum 28percent rate (including the Medicare tax that goes into eect in 2013)
and dividends as ordinary income.
Health care exclusion: The value o the exclusion is limited or those
with earnings in excess o $250,000 per year to 28 percent.
Marginal tax rates:
Earned income tax credit: Recent EITC enhancements are perm
nently extended.
Personal exemption phaseout, or PEP, and itemized deduct
limitation, or Pease: Eliminated.
Alternative minimum tax: Eliminated.
Estate tax: Exemption o $2 million per individual$4 million
couple and 48 percent top rateindexed or ination. Close lo
holes in the estate and git tax as proposed by President Obam
Other elements:
50-cent increase in cigarette tax Tax on alcoholic beverages at a uniorm $16 per proo gallon
Regulating and imposing small ees on Internet gambling
Permanent extension o the research and experimentation, o
tax credit and clean energy incentives
Corporate tax reorm that increases corporate tax revenues b
percent and results in a lower statutory rate
$12 billion in savings rom reorms to tax-preerred retireme
savings plans.
Elimination o carried interest loophole and S corporation
care tax loophole
Note: Numbers and amounts are or the 2017 tax year. All param
would be indexed or infation according to the chained consume
index.
Our proposed tax reorm at a glance
Couples Singles
$0$100,000: 15% $0$50,000: 15%
$100,000$150,000: 21% $50,000$75,000: 21%
$150,000$200,000: 25% $75,000$150,000: 25%
$200,000$422,000: 35% $150,000$422,000: 35%
$422,000 and above: 39.6% $422,000 and above: 39.6%
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A progressive tax reorm | .americanprogress.o
Tax rates
Our plan keeps he op individual income ax rae a 39.6 percenhe same as
i was under Presiden Clinonrom 1993 hrough 2000. Tere has been much
alk o lae regarding lowering he op marginal income ax rae. Ye he hisorical
record srongly suggess ha raes below he 39.6 percen ha we propose would
have litle meaningul posiive eec on work incenives or economic growh.13 O
course 39.6 percen was he op rae during he economic successes o he 1990s,
and raes were even higher during many o he oher sronges periods o U.S.
economic growh.14 (see Figure 2 on ollowing page)
Despie he evidence ha lowering he op rae will have litle, i any, posiive
economic eec, he argumen persiss ha we should do so. And while much
atenion has been paid o he idea o lowering he op rae, very litle has been
paid o how much ax raes can be lowered while raising adequae revenue and
doing so progressively.
Many grand claims have been made claiming ha raes can be subsanially low-
ered and he revenue-loss ose by eliminaing ax expendiureshose deduc-
ions, exempions, exclusions, credis, and oher special provisions ha reduce ax
tablE 1
Our plans distributional eects, tax year 2017
I ncome group Ave rage incomeAverage tax change
rom current policy
Average tax change
rom current law
$Percent o pretax
income$
Percent o pretax
income
$0-$25,000 $15,800 131 0.8% 450 2.8%
$25,000-$50,000 $36,500 279 0.8% 1,035 2.8%
$50,000-$75,000 $61,500 304 0.5% 1,538 2.5%
$75,000 -$100,000 $86,900 164 0.2% 2,233 2.6%
$100,000-$250,000 $145,700 +468 +0.3% 4,287 2.9%
$250,000-$500,000 $334,400 +5,509 +1.6% 4,941 1.5%
$500,000-$1,000,000 $677,000 +18,078 +2.7% +608 +0.1%
$1,000,000 or more $3,137,300 +155,700 +5% +35,658 +1.1%
Notes: Tables reect plans income and excise tax changes, ully phased-in, except or retirement savings, carried interest, and I nternet gambling proposals. Current policybaseline assumes the extension o the income tax cuts enacted in 2001, 2003, and 2009 and extended through 2012, and an AMT patch, but does not include the current
payroll tax holiday. Current law is the tax law that would take efect in 2013 (with no AMT patch). Source: Institute or Taxation and Economic Policy tax model and CAPcalculations (2017 tax year).
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12 Center or American Progress | Reorming Our Tax System, Reducing Our Deicit
liabiliy. Bu hose who make such claims rarely oer specic reorms ha make
he numbers add up. Te ew who have done so demonsrae jus how dicul and
unrealisic i is o make ha mah work. (see ex box)
Tis isn o say, by any means, ha ax expendi-
ures couldn or shouldn be reined in. In ac,i is by reining in ax expendiures, as described
below, ha we are able o preven he ax rae
rom rising above Clinon levels while genera-
ing adequae revenue progressively and simula-
neously simpliying he ax sysem.
Te 39.6 percen ax rae is he op rae we
propose or ordinary income, bu we also
address he op raes or dividends and capial
gains income ha have been cu subsaniallyin recen years. As wih he op rae on ordi-
nary income, hese lower raes on capial gains
and dividend income have no produced heir
promised economic benes and have enabled
many o he highes-income Americans o pay
exremely low overall ax raeslower han
people ar below hem on he income lad-
der.15 Furhermore, hese ax breaks or capial
income have conribued o he rapid rise in
income and wealh inequaliy. Our plan reas
dividends as ordinary incomeas hey were or 90 years preceding 2003and
resores he op capial gains rae o 28 percenhe same rae ha was in eec
aer Presiden Reagan signed he 1986 ax Reorm Ac and hroughou much
o he 1990s.16
Cleaning up the tax code
An imporan par o he new revenue in our plan comes rom reducing he valueo various ax expendiures. Under he exising ax sysem, many o hese ax
expendiures, such as hose or morgage ineres, chariable giving, and reire-
men savings, are upside-downha is, hey provide a bigger bene o hose in
higher ax brackes. Ta is boh unair and inecien.
FIGURE 2
Top marginal ederal tax rates since World War II
Combined individual income and payroll taxes on ordinary
income and capital gains
0%
20%
40%
60%
80%
100%
Top marginal tax rate
Top capital gains tax rate
Rates under CAP plan
1945 1955 1965 1975 1985 1995 2005 2015
2013
Notes: From 1970-1981, the top rate on unearned income other than capital gains (e.g. interest,dividends) was 70 percent. Beginning in 2003, the capital gains rate applied to qualied dividends aswell. Top rates includes the efect o the Pease limitation on itemized deductions or relevant years
and the Medicare tax.
Source: Center or American Progress calculation based on http://www.ctj.org/pd/regcg.pd.
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A progressive tax reorm | .americanprogress.o
Our proposal addresses he upside-down problem while achieving signican,
progressive revenue increases by ransorming iemized deducions ino cred-
is. Mos expenses ha are currenly claimed as iemized deducions would be
ransormed ino nonreundable ax credis equal o 18 percen o heir value. Tis
would provide he same ax bene o axpayers in all ax brackeswih middle-
income axpayers beneing rom he change.
Under he curren ax code, or example, i wo amilies boh deduc $10,000 in
morgage ineres paid rom heir axable income, heir acual ax bene could
vary grealy. For a high-income amily in he 35 percen ax bracke, ha deduc-
ion would lower heir ax bill by $3,500. For a middle-income amily in he 15
percen bracke, ha same $10,000 deducion resuls in only $1,500 in ax savings.
Under our plan, since boh amilies paid he same amoun o morgage ineres,
hey would boh receive he same $1,800 ax bene.
Te excepion in our plan o he ransormaion o iemized deducions o an 18percen credi is or chariable conribuions. Tose conribuions will generally
be eligible or up o a 28 percen credi. Tus he subsidy or chariable giving will
be decreased or hose in higher ax brackes bu no decreased by as much as or
he oher orms o deducions. I should also be noed ha a he poin when our
plan is pu ino eec, a higher credi han 18 percen will be available or mor-
gage ineres expenses or hose axpayers or whom an 18 percen credi repre-
sens a reducion in bene relaive o he curren morgage ineres deducion.
Te morgage ineres credi will be gradually phased down o he 18 percen ha
is available or oher iemized expenses.
Our plan also replaces he sandard deducion wih a large sandard credi o
$5,000 or couples and $2,500 or singles. Te sandard credi largely serves he
same purpose as he exising sandard deducionrelieving mos axpayers o
he need o rack and iemize heir expenses or ax purposes.17 Currenly, only
abou one-hird o axpayers iemize heir expenses. Under our plan, abou 80
percen would claim he sandard credi and only abou one-h would iemize.
Oher ax expendiures are also sreamlined under our plan, including hose or
reiremen savings used by high-income axpayers. And our plan closes severaldicul-o-jusiy loopholes, including he carried ineres loophole ha allows
invesmen und managers o conver heir income ino low-axed capial gains,
and he so-called S corporaion loophole hrough which high-income proes-
sionals can avoid Medicare axes.
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14 Center or American Progress | Reorming Our Tax System, Reducing Our Deicit
Our plan diers rom several other plans that propose to reduce
defcits while also reducing tax rateseven below the already-low
levels in eect today. The Simpson-Bowles plan and the Bipartisan
Policy Center plan, or example, would use a large portion o the
revenue gains rom cutting tax expenditures to reduce income tax
rates instead o reducing the defcit. That approach, o course, neces-
sitates much larger cuts in tax expenditures than would otherwise be
neededon the order o $4 trillion or more over 10 years. As a result,
these plans hinge on Congresss willingness to agree on tax expen-
diture reductions that we believe are politically unrealistic, economi-
cally and socially undesirable, or both.
To be sure, tax expenditures, which today reduce revenues by a total
o more than $1 trillion per year, can and should play a major role
in defcit reduction. But in setting the parameters or tax reorm,
Congress needs to be realistic in how much savings can be achieved
rom reducing tax expenditures and also needs to be cognizant o
the distributional consequences. To their credit, the Simpson-Bowles
and Bipartisan Policy Center plans illustrate the kinds o drastic policy
changes needed to achieve signifcant defcit reduction while also
lowering tax rates. We simply believe that the beneft rom lower
income tax rates as part o these defcit reduction proposals is not
worth many o the costs and dislocations.
Both the Simpson-Bowles and Bipartisan Policy Center plans, orexample, completely repeal the tax exclusion or employer-sponsored
health insurance, which benefts 160 million Americans who receive
health insurance through their jobs. Although some reasonable level
o savings can be achieved in this area, eliminating the health insur-
ance exclusion outright would hit the middle class, potentially disrupt
a health care system that is based primarily on employer-provided
insurance, and would increase costs or public health care programs.18
Both o these plans also eliminate the tax deduction or state and
local taxes paid. That deduction has some justifcation and entirely
eliminating it would mean that tax reorm would disproportion
burden residents o high-tax states. (Our plan strikes a compro
transorming it into an 18 percent credit.)
These plans also rely on other tax expenditure reductions that Co
would be extremely unlikely to agree to. The Simpson-Bowles and
partisan Policy Center plans, or example, derive hundreds o billi
dollars in savings rom assuming that Congress would entirely eli
a tax expenditure known as stepup in basis, meaning that all un
capital gainsincluding rom businesses or homes that have rise
valuewould be taxed upon a persons death. Given the politics
estate tax and capital gains, that seems extremely unlikely.
The Simpson-Bowles plan would also broaden the tax base by t
veterans benefts, workers compensation payments, oster care p
ments, public assistance benefts, and other orms o income tha
currently not taxed. We are deeply skeptical that Congress would
these choices deliberately. And that is why we would warn again
locking in a tax reorm ramework with lower tax rates that could
cessitate these drastic reductions in tax expenditures. To put this
spective, a Congressional Research Service report puts the numb
realistic tax expenditure reduction, annually, at between $100 bi
and $150 billionon the order o one-quarter or one-third o w
Simpson-Bowles and the Bipartisan Policy Center plans propose
Furthermore, both o these plans raise taxes on the middle clas
low-income Americans.20 Indeed, the decision to reduce the ma
rates paid by the highest-income Americans all but orces that
come. There are inevitable distributional tradeos between red
tax rates and reducing tax expenditures. While tax rate reductio
disproportionately beneft high-income households, the larges
expendituresaside or investment tax breaksbeneft house
o all income levels, and deep reductions in those tax expendit
can easily outweigh the beneft that middle-class and low-inco
households receive rom cuts in tax rates.
Why not lower the rates?
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A progressive tax reorm | .americanprogress.o
Finally, i should be noed ha here are many oher provisions o he ax code
o be reviewed and evaluaed. Some o hese have creaed openings or creaive
accouning o avoid he esae ax, ways o make ordinary income look like lower-
axed capial gains, and sraegies ha allow reiremen accouns and lie insurance
o be used o avoid axes ar beyond wha was originally inended. Some o hese
provisions are well known and have been evaluaed, and we know how much heycos in revenue. We have explicily included addressing some o hem in his plan.
Ohers, however, are less well known and have no been ully assessed bu should
cerainly be ully considered as par o ax reorm.
Relaed o he problem o legal ax avoidance is he problem o he ax gap. Te
ax gap is he gap beween wha is acually owed in axes and wha is paid. Te
gap is a resul o boh inenional ax evasion and uninenional underpaying.
Te gap is currenly esimaed o be a $450 billion.21 o address boh o hese
compliance problems, he capaciy o he IRS should be expanded o ensure he
enorcemen o our curren ax laws and o provide a beter undersanding o helegal evasion ha is aking place and he cos o i. In his way addiional revenue
could be raised and, i desirable, used o modiy some o he provisions o his pro-
posal such as he reducion o he bene o iemized expenses as we move rom a
deducion o a credi.
Simplifying filing
Our plan also simplies he process o ax ling by eliminaing several complica-
ing eaures o odays ax code. For one hing, by cuting back on he ax advan-
ages ha he alernaive minimum ax is mean o address, ha complex par o
he ax code is rendered unnecessary. Tereore, our plan enirely eliminaes he
alernaive minimum ax.
We also eliminae personal and dependen exempions and he sandard deduc-
ion, and replace hem wih he larger sandard credi and expanded child credi.
Tis reduces he number o seps required or ax ling and consolidaes several
dieren calculaions ino one simpler mechanism. Our plan also renders unnec-
essary he phase-ou o personal exempions and he Pease limi on iemizeddeducions, which would be resored nex year under curren law. In our plan
abou 80 percen o axpayers will claim he sandard credi.
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16 Center or American Progress | Reorming Our Tax System, Reducing Our Deicit
Other taxes
Te ocus o our plan is reorming he personal income ax. Tere are, however,
several oher changes ha aec oher axes and generae revenues.
Firs, our plan includes abou $4 billion per year in higher excise axes on ciga-retes, as proposed in CAPs recenly released healh reorm plan, he Senior
Proecion Plan.22 We also raise an addiional $6 billion per year in alcohol axes,
reversing decades o erosion in revenue rom ha source. In addiion we raise $4
billion rom regulaing and imposing small ees on Inerne gambling.
Second, we believe he corporae income ax is ripe or reorm ha broadens he ax
base, lowers he sauory rae, and raise addiional revenue. Tereore, we assume a
reorm o he corporae income ax ha generaes approximaely a 4 percen increase
in overall corporae income ax revenue.23 We believe ha addressing he use o
ranser pricinghe valuaion o goods, services, and asses in inernaional rans-acionsis o paricular imporance in reorming he corporae income ax.
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Te spending side o te equation | .americanprogress.o
The spending side of the equation
Our ax reorm plan would generae approximaely $1.8 rillion in addiional rev-
enue over he nex 10 years. Tas above he $1.6 rillion proposal rom Presiden
Obama bu below he overall ax increases proposed by Simpson-Bowles in his
10-year period. Revenues would, however, reach Simpson-Bowles levels oward
he end o he period. We believe ha his ax reorm should be accompanied by
spending reducions ha are roughly equal in size o he ax increases.
Forunaely, we are already well on our way o ha goal. In 2011 Presiden Obamasigned ino law several pieces o legislaion ha reduced projeced ederal spend-
ing on discreionary programshose programs ha require an annual appropria-
ion rom Congressby more han $1.5 rillion.24 Tese cus do no include he
so-called sequesraion, which is se o begin in January 2013. Raher, hese cus
come rom he agreed-on caps on boh deense and nondeense discreionary
spending in place or he remainder o he decade.
Because o hose capswhich he presiden no only signed ino law bu hen
also incorporaed ino his subsequen budge proposalsspending on nonde-
ense discreionary services and programs is se o all o is lowes levels since
his caegory was creaed in 1962. Deeper cus would undermine vial uncions
o governmen and sacrice needed invesmens. Furher cus o spending mus
come rom oher pars o he budge.
Te Cener or American Progress recenly released a plan eniled he Senior
Proecion Plan,25 which nds $385 billion in addiional savings rom ederal
healh care programs, mainly rom Medicare. Tese savings do no come rom
slashing benes or shiing he cos burden ono senior ciizens, amilies, or saes.
Raher, our approach is o reduce he overall cos o healh care by improvingeciencies, by eliminaing waseul subsidies, and by heighening he incenives
or improving he qualiy o care wihou increasing coss.
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18 Center or American Progress | Reorming Our Tax System, Reducing Our Deicit
Our plan includes an array o srucural reorms o bend he cos curve over he
long erm:
Reforming the way prices are determined for health care products and some
services. Righ now, he governmen ses hese prices or he mos par. Insead,
Medicare and Medicaid should adop marke-based prices, allowing manuac-urers and suppliers o compee o oer he bes prices.
Reforming the way health care is paid for and delivered. Righ now, Medicare
and Medicaid pay a ee or each service or he mos par. Tis creaes incenives
or docors o order more and more proable ess and procedures. Insead,
hese programs should pay a xed amoun or a bundle o services or or all o a
paiens care.
Encouraging states to become accountable for controlling health care costs.
Accounable care saes ha keep overall healh care spending below a globalarge would be rewarded wih bonus paymens.
In addiion o srucural reorms, our plan includes dozens o reorms ha would
guaranee a down paymen o savings. Tese include:
Reducing drug costs.When Medicaid covered drugs or seniors, drug com-
panies provided large discouns, bu Medicare does no ge he same deal.
Medicaid rebaes should be exended o brand-name drugs purchased by low-
income Medicare beneciaries.
Bringing Medicare payments into line with actual costs. Te independen
Medicare Paymen Advisory Commissionwhich advises Congress on
Medicare policyhas idenied numerous ways ha healh care providers
should be more ecien. argeing ineciency is much beter han resoring
o a series o blun, across-he-board cus in provider paymen raes. Under our
plan, or example, hospials would are much beter wih smaller and beter
argeed cus.
Increasing premiums for high-income Medicare beneficiaries. High-incomebeneciaries pay higher premiums under curren law. Bu he share o bene-
ciaries who pay higher premiums should be expanded and he higher premium
amouns should be increased by 15 percen.
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Te spending side o te equation | .americanprogress.o
In addiion o addiional savings in healh care, we propose $100 billion in sav-
ings rom oher nondiscreionary programs. Tese are seleced rom a range o
measures previously proposed by he Cener or American Progress and ound in
he presidens budge.26 And while we srongly believe ha he sequeser mus
be avoided, he Penagon should also be asked o sreamline, o reduce wase and
ineciency. I is no unreasonable o expec ha he Penagon can conribueabou $10 billion a yearless han 2 percen o is currenly projeced budge
oward deci reducion.
Finally, spending cus and ax increases alone
canno solve our budge dilemma. We mus also
help he economy recover as as as possible.
Elevaed unemploymen, depressed wages, and
increased povery are all signican conribu-
ors o our budge decis. Any plan o reduce
he deci over he nex 10 years mus beginwih a signican eor o advance job creaion
oday. Our plan includes room or $300 billion
in job-creaing invesmens such as inrasruc-
ure consrucion and repair, eacher hiring and
raining, and home and commercial energy
eciency reros. We also make room on he
ax side or $100 billion in ax cus relaed o
employmen such as he payroll ax holiday, a
reurn o he Making Work Pay ax credi, or
similar measures.27
Alogeher, and aking ino accoun iniial job-creaion spending, our plan includes
more han $1.8 rillion in programmaic spending cus. Tese cus would reduce
ederal spending rom a projeced level o more han 24 percen o GDP in 2022 o
abou 22.7 percen o GDP. (see Figure 3) When combined wih he $1.8 rillion
in added revenue, we generae anoher $500 billion in reduced spending on ineres
paymens on he deb or oal deci reducion over 10 years o $4.1 rillion.
FIGURE 3
Federal spending, as a share o GDP, 2012-2022
20%
25%
21%
22%
23%
24%
Current law
Simpson-Bo
CAP plan
Obama Bud
Policy witho
deficit redu
2012 2014 2016 2018 2020 2022
Note: Policy without decit reduction is projections o ederal spending under current policy prio
discretionary spending cuts enacted since scal year 2010.
Source: CBO, Moment o Truth Project, Center or American Progress calculations.
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Bottom ine | .americanprogress.o
Bottom line
Our plan consiss o $1.8 rillion in new revenue
rom a progressive ax reorm, $1.8 rillion in
programmaic spending cus, and anoher $500
billion in ineres savings or a oal o $4.1 ril-
lion in deci reducion. (see able 2)
I implemened, our plan would reduce budge
decis o less han 3 percen o gross domesicproduc by 2015 and lower hem urher, o
abou 2 percen o GDP, by 2017. Insead o
climbing higher and higher, he deb would
begin o all by 2015, dropping o 72 percen o
GDPlower han i is odayby he end o he
decade. (see Figure 4)
Tis is wha a balanced and realisic plan or de-
ici reducion looks like. I asks hose who have
gained he mos over he pas decade o give
somehing back. I asks hose who can aord i
o bear heir air share o he burden. I proecs
seniors, he middle class, and hose sriving o
ge ino he middle class. I simplies he ax
code, making i airer and easier o undersand.
I nds eciencies and cus spending ha we
canno aord. And crucially, i sabilizes he
deb and ses i on a downward pah.
FIGURE 4
Publicly held debt, as a share o GDP, 2012-2022
Current law
Simpson-Bow
CAP plan
Obama Budg
Policy withou
deficit reduct
40%
50%
60%
70%
80%
90%
100%
2012 2014 2016 2018 2020 2022
Note: Policy without decit reduction is projections o ederal spending under current policy prito discretionary spending cuts enacted since scal year 2010.
Source: CBO, Moment o Truth Project, Center or American Progress calculations.
tablE 2
Elements o CAP deicit plan
Revenue changes
Tax reorm + $1.9 trillionTemporary job creation tax cuts - $100 billion
Net new revenue +$1.8 trillion
Spending changes
Disc. spending cuts already enacted - $1.5 trillion
Additional deense cuts - $100 billion
Health savings - $385 billion
Other mandatory cuts - $100 billion
Job creation + $300 billion
Programmatic spending cuts - $1.8 trillion
Interest savings - $500 billion
Net spending cuts - $2.3 trillion
Total deicit reduction $4.1 trillion
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22 Center or American Progress | Reorming Our Tax System, Reducing Our Deicit
About the authors
Roger Altman is ounder and execuive chairman o Evercore Parners. He served
in he Deparmen o he reasury as assisan secreary in he Carer adminisra-
ion and as Depuy Secreary in he Clinon adminisraion rom 1993 o 1995.
In beween, he was co-head o invesmen banking a Lehman Brohers and amember o he rms Managemen Commitee and is Board, and vice chairman a
he Blacksone Group.
William Daley served as Presiden Barack Obamas Chie o Sa rom January
2011 unil January 2012. Prior o his chie o sa role, Daley was vice chairman
and chairman o he Midwes or JPMorgan Chase, rom 2004 unil 2011. He was
presiden o SBC Communicaions rom 2001 unil 2004. In 2000, he chaired
Vice Presiden Al Gores presidenial campaign. From 1997 o 2000 Daley served
as U.S. Secreary o Commerce under Presiden Bill Clinon.
John Podesta is he ounder and Chair o he Cener or American Progress and
was is Presiden rom 2003 o 2011. Prior o ounding he Cener, Podesa served
as Whie House Chie o Sa o Presiden Clinon. Mos recenly, Podesa served
as co-chair o Presiden Obamas ransiion. Podesa has also held numerous posi-
ions on Capiol Hill.
Robert E. Rubin served as Secreary o he reasury rom 1995 o 1999. He
joined he Clinon adminisraion in 1993, serving in he Whie House as assis-
an o he presiden or economic policy and as he rs direcor o he Naional
Economic Council. He joined Goldman, Sachs & Company in 1966 and served
as co-chairman rom 1990 o 1992. From 1999 o 2009 Rubin served as a mem-
ber o he Board o Direcors a Ciigroup. He currenly serves as co-chairman o
he Council on Foreign Relaions, is a member o he Harvard Corporaion, and
counselor o Cenerview Parners.
Leslie B. Samuels is a senior parner o Cleary Gotlieb Seen & Hamilon LLP.
From 1993 o 1996 he served as assisan secreary or ax policy o he U.S. reasury
Deparmen, and rom 1994 o 1996 also served as vice chairman o he Commitee
o Fiscal Aairs in he Organizaion or Economic Cooperaion and Developmen.Mr. Samuels joined Cleary Gotlieb in 1968 and became a parner in 1975.
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About te autors | .americanprogress.o
Lawrence H. Summersis he Charles W. Elio Universiy Proessor a Harvard.During he Clinon adminisraion, he served in he Deparmen o he reasury
as undersecreary or inernaional aairs, depuy secreary, and secreary o he
reasury. Summers was hen presiden o Harvard Universiy rom 2001 o 2006.
From 2009 unil 2011 he served in he Whie House as direcor o he Naional
Economic Council.
Neera Tanden is he Presiden o he Cener or American Progress. anden
previously served on Presiden Obamas healh reorm eam. Prior o ha, anden
was he direcor o domesic policy or he Obama-Biden campaign. anden
served as policy direcor or Hillary Clinons presidenial campaign and associ-
ae direcor or domesic policy and senior advisor o he rs lady in he Clinon
adminisraion.
Antonio Weiss is global head o invesmen banking or Lazard, an independen
nancial and asse managemen rm. Weiss is publisher oTe Paris Review andrusee o various nonpro insiuions.
Michael Ettlingeris Vice Presiden or Economic Policy a he Cener orAmerican Progress. Prior o joining he Cener, he spen six years a he Economic
Policy Insiue direcing he Economic Analysis and Research Nework.
Previously he was ax policy direcor or Ciizens or ax Jusice and he Insiue
or axaion and Economic Policy or 11 years. He has also served on he sa o
he New York Sae Assembly.
Seth Hanlon is Direcor o Fiscal Reorm a he Cener or American Progress,
where his work ocuses on ederal ax issues. Prior o joining he Cener, Seh
praciced law as an associae wih he Washingon, D.C. rm o Caplin & Drysdale,
where he ocused on ax issues acing individuals, corporaions, and nonpro
organizaions, and previously served on Capiol Hill as an aide o Reps. Harold
Ford Jr (D-N) and Mary Meehan (D-MA).
Michael Linden is Direcor or ax and Budge Policy a he Cener or American
Progress. Michaels work ocuses on he ederal budge and he medium- and long-
erm decis. He has co-auhored numerous repors on he causes o and soluionso our scal challenges, including Pah o Balance, which rs proposed primary
balance as an inermediae goal, and A Firs Sep, which included a deailed plan
or achieving ha goal.
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24 Center or American Progress | Reorming Our Tax System, Reducing Our Deicit
Acknowledgements
We would like o acknowledge he criical suppor o he Peer G. Peerson
Foundaion. Tis plan was based, in par, on work prepared or he Peerson
Foundaions Soluions Iniiaive. Te Peerson Foundaion convened organiza-
ions wih a variey o perspecives o develop plans addressing our naions scalchallenges. Te American Acion Forum, Biparisan Policy Cener, Cener or
American Progress, Economic Policy Insiue, and Te Heriage Foundaion each
received grans. All organizaions had discreion and independence o develop
heir own goals and propose comprehensive soluions. Te Peerson Foundaions
involvemen wih ha projec does no represen endorsemen o any plan.
We would also like o hank he Rockeeller Foundaion or is generous suppor.
In addiion, we would like o hank Rober McInyre, John OHare, Sarah Ayres, and
numerous sa a he Cener or American Progress or heir invaluable conribuions.
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Endnotes | .americanprogress.o
Endnotes
1 Congressiona Budget Oce, Budget and EconomicUpdate, August 2012 (aternative sca scenario).
2 Ibid.
3 In The Wealth of Nations (1776), Smit rote, It is notvery unreasonabe tat te ric soud contribute tote pubic expense, not ony in proportion to teirrevenue, but someting more tan in tat proportion.
4 See: Micae Greenstone and oters, A Dozen Eco-nomic Facts About Tax Reorm (wasington: BrookingsInstitution, 2012), avaiabe at ttp://.brookings.edu/researc/papers/2012/05/03-taxes-greenstone-ooney-samues. Incomes o te 1 percent decinedsarpy in te recession but ave bounced back astertan a oter groups.
5 An anaysis o te tota tax system (edera, state, andoca) by Citizens or Tax Justice, or exampe, nds tatAmericans in te midde o te income distributionpay 25 percent o teir incomes in taxes, ie te 1percent it te igest incomes pay 29 percent. See:Citizens or Tax Justice, wo Pays Taxes in America(2012), avaiabe at ttp://ctj.org/ctjreports/2012/04/o_pays_taxes_in_america.pp.
6 Ricard Kogan, Congress has Cut DiscretionaryFunding by $1.5 Triion Over Ten Years (wasing-ton: Center on Budget and Poicy Priorities, 2012),avaiabe at ttp://.cbpp.org/cms/index.cm?a=vie&id=3840.
7 CAP cacuations based on: Moment o Trut Project,Updated Estimates o te Fisca Commission Proposa(2011), reative to current poicies. Current tax poiciesin tis case reers to te extension o te 2001, 2003,and 2009 tax cuts, but not te continuation o te so-caed tax extenders.
8 Congressiona Budget Oce, Te Distribution ohouseod Income and Federa Taxes, 2008 and 2009(2012), avaiabe at ttp://.cbo.gov/pubica-tion/43373.
9 Ibid.
10 See, or exampe: Emmanue Saez, Joe B. Semrod,and Set h. Giertz, Te Easticity o Taxation Incomeit Respect to Margina Tax Rates: A Critica Revie.working Paper 15012 (Nationa Bureau o EconomicResearc, 2010), avaiabe at ttp://esa.berkeey.edu/~saez/saez-semrod-giertzJEl10round2.pd;Greenstone and oters, A Dozen Economic Facts About
Tax Reorm; Tomas l. hungerord, Taxes and teEconomy: An Economic Anaysis o te Top Tax RatesSince 1945 (wasington: Congressiona Researc Ser-vice, 2012), avaiabe at ttp://grapics8.nytimes.com/nes/business/0915taxesandeconomy.pd; CristinaD. Romer and David h. Romer, Te Incentive Efectso Margina Tax Rates: Evidence rom te Interar Era.working Paper 17860 (Nationa Bureau o EconomicResearc, 2012); Raj Cetty, Bounds on Easticities witOptimization Frictions: A Syntesis o M icro and Macro
Evidence on labor Suppy, Econometrica 80 (3) (2012):9691018; Cye-Cing huang, Recent Studies FindRaising Taxes on hig-Income houseods woud Notharm te Economy (wasington: Center on Budgetand Poicy Priorities, 2012), avaiabe at ttp://.cbpp.org/cms/index.cm?a=vie&id=3756;Micaelinden, Ric Peopes Taxes have litte to Do it JobCreation, Center or American Progress, June 27, 2011,avaiabe at ttp://.americanprogress.org/issues/tax-reorm/nes/2011/06/27/9856/ric-peopes-taxes-ave-itte-to-do-it-job-creation/.
11 See: Micae Ettinger and Jon Irons, Take a wak onte Suppy Side (wasington: Center or AmericanProgress and Economic Poicy Institute, 2008), avaiabeat ttp://.americanprogress.org/p-content/upoads/issues/2008/09/pd/suppy_side.pd; Centeror American Progress anaysis o Bureau o laborStatistics, tota nonarm empoyment (Jan. 1993-Jan.2001).
12 See, or exampe: Greenstone and oters, A DozenEconomic Facts About Tax Reorm.
13 Ibid.; Robert Greenstein, Joe Friedman, and Jimhorney, Te Tension Beteen Reducing Tax Rates andReducing Decits (wasington: Center on Budget andPoicy Priorities, 2012); Jane G. Gravee and Tomas l.hungerord, Te Caenge o Individua Income TaxReorm: An Economic Anaysis o Tax Base Broaden-ing (wasington: Congressiona Researc Service,2012), avaiabe at ttp://.asingtonpost.com/p-srv/business/documents/crstaxreorm.pd; NationaCommission on Fisca Responsibiity and Reorm, TeMoment o Trut (2010), gure 8; Bipartisan PoicyCenter, Bipartisan Poicy Center (BPC) Tax Reorm,Quick Summary, avaiabe at ttp://bipartisanpoicy.org/sites/deaut/es/Tax%20Reorm%20Quick%20Summary_.pd.
14 Top Federa Income Tax Rates Since 1913, avaiabe atttp://.ctj.org/pd/regcg.pd.
15 See: leonard E. Burman, Tax Reorm and te Tax Treat-ment o Capita Gains, Testimony beore te houseCommittee on ways and Means and Senate Committeeon Finance, September 20, 2012, avaiabe at ttp://.nance.senate.gov/imo/media/doc/092012%20Burman%20Testimony.pd; Cye-Cing huang andCuck Marr, Raising Todays lo Capita Gains RatesCoud Promote Economic Eciency and Fairness,wie heping Reduce Decits (wasington: Center onBudget and Poicy Priorities, 2012), avaiabe at ttp://.cbpp.org/cms/index.cm?a=vie&id=3837.
Tomas l. hungerord, An Anaysis o te Bufett Rue(wasington: Congressiona Researc Service, 2012).
16 Te 28 percent is incusive o te 3.8 percent tax on netinvestment income.
17 Te arge standard credit aso eps repace personaexemptions under our pan.
18 Greenstone and oters, A Dozen Economic FactsAbout Tax Reorm; Robert Greenstein, Joe Friedman,and Jim horney, Te Tension Beteen Reducing TaxRates and Reducing Decits (wasington: Center onBudget and Poicy Priorities, 2012).
19 Jane G. Gravee and Tomas l. hungerord, TeCaenge o Individua Income Tax Reorm: An Eco-nomic Anaysis o Tax Base Broadening (wasington:Congressiona Researc Service, 2012), avaiabe atttp://.asingtonpost.com/p-srv/business/documents/crstaxreorm.pd.
20 Nationa Commission on Fisca Responsibiity andReorm, Te Moment o Trut (2010), gure 8;Bipartisan Poicy Center, Bipartisan Poicy Center (BPC)
Tax Reorm, Quick Summary, avaiabe at ttp://bipar-tisanpoicy.org/sites/deaut/es/Tax%20Reorm%20Quick%20Summary_.pd.
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26 Center or American Progress | Reorming Our Tax System, Reducing Our Deicit
21 Te IRS estimates tat in 2006, te gross tax gaptetota amount o tax tat as oed but not paid ontimeas $450 biion; enorcement eforts and atepayments reduced te net tax gap to $385 biion.
Tose estimates ikey underestimate te actua tax gapdue to te dicuty o estimating unreported ofsoreincome, among oter reasons. See: Interna RevenueService, IRS Reeases Ne Tax Gap Estimates, January6, 2012, avaiabe at ttp://.irs.gov/uac/IRS-Reeases-Ne-Tax-Gap-Estimates;-Compiance-Rates-Remain-Statisticay-Uncanged-From-Previous-Study;
Treasury Inspector Genera or Tax Administration, A
Combination o legisative Actions and Increased IRSCapabiity Are Required to Reduce te Muti-BiionDoar U.S. Internationa Tax Gap, January 27, 2009,avaiabe at ttp://.treasury.gov/tigta/iereports/2009reports/2009IER001r.tm.
22 Center or American Progress heat Poicy Team,Te Senior Protection Pan (wasington: Centeror American Progress, 2012), avaiabe at ttp://.americanprogress.org/issues/eatcare/re-port/2012/11/14/44590/te-senior-protection-pan/.
23 wie our ocus it tis tax reorm proposa as beente individua income tax, e do tink te corporateincome tax is ripe or reorm as e. As noted, tisreorm soud be revenue positive, toug e are notproposing specic mecanisms or doing so. Many rea-sonabe ideas ave aready been proposed incudingsevera proposas in te presidents budget request, as
e as is outine or more compreensive reorm. See:Te wite house and te Department o te Treasury,Te Presidents Frameork or Business Tax Reorm(2012). Ideay, suc a reorm oud invove bot raisingrevenue and oering te top corporate rate.
24 Kogan, Congress has Cut Discretionary Funding by$1.5 Triion Over Ten Years.
25 Center or American Progress heat Poicy Team, TeSenior Protection Pan.
26 Micae Ettinger, Micae linden, and Set hanon,Budgeting or Grot and Prosperity (wasington:Center or American Progress, 2011), avaiabe atttp://.americanprogress.org/issues/budget/report/2011/05/25/9572/budgeting-or-grot-and-prosperity/; Micae Ettinger, Micae linden, and
Reece Rusing, Te First Step (wasington: Centeror American Progress, 2010), avaiabe at ttp://.americanprogress.org/issues/economy/re-port/2010/12/06/8716/te-rst-step/.
27 Micae Ettinger and oters, Spurring Job Creation inte Private Sector (wasington: Center or AmericanProgress, 2011), avaiabe at ttp://.americanpro-gressaction.org/issues/abor/report/2011/08/26/10167/spurring-job-creation-in-te-private-sector/; David M.Abromoitz and oters, Meeting te Jobs Caenge(wasington: Center or American Progress, 2009),avaiabe at ttp://.americanprogress.org/issues/abor/report/2009/12/02/7063/meeting-te-jobs-caenge/.
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