In the afternoon of July 19, the “Gang of Six” deficit reduction plan aimed at avoiding a looming debt default appeared to be gaining traction in Washington. The plan includes substantial tax changes.
The President publicly endorsed the “Gang of Six” plan's overall approach, Senate Majority Leader Harry Reid (D-NV) offered it a qualified nod, Senator Roger Wicker (R-MS) is reported to have said the package could clear the Senate, and Senate Budget Committee Chairman Kent Conrad (D-ND), one of the bipartisan “Gang of Six” Senators, said the response he received from a number of his colleagues was very favorable.
Broad tax changes contemplated. The latest word about the plan is that it will shave $3.75 trillion off the deficit over ten years and will contain about $1.2 trillion in new revenues.
An unofficial summary of the bipartisan plan calls for the Senate Finance Committee within six months to report a comprehensive tax reform package that delivers “real deficit savings by broadening the tax base, lowering tax rates, and generating economic growth.” Specifics of the tax changes covered in the unofficial summary include:
A single corporate tax rate between 23% and 29% and shift to a competitive territorial tax system.
Tax simplification that involves reducing the number of tax expenditures (i.e., tax breaks) and reducing individual tax rates. There would be three tax brackets with rates in the range of 8%–12%, 14–22%, and 23%–29%. To the extent future Congresses find that the dynamic effects of tax reform result in additional revenue beyond initial targets, this revenue would go to additional rate reductions and deficit reduction, not to new spending.
Permanent repeal of the alternative minimum tax (AMT).
Reform, rather than elimination, of tax breaks for health, charitable giving, homeownership, and retirement.
Retention of the earned income tax credit and child tax credit, or creation of an alternative that would provide at least the same level of support for qualified beneficiaries.