There's a rising tenor in Washington about finding a new way to handle taxation.
To put it simply, deficits are increasing, the national debt is rising, and tax revenue isn't increasing. So it looks increasingly like some kind of tax reform is inevitable. The question now is what that reform will look like.
A number of different commissions, parties, caucuses have been charged with coming up with plans to deal with taxes, but so far, there has been little consensus on how to reform the code.
The debate was reignited this week, when New York Senator Chuck Schumer, the third ranking Senate Democrat introduced a tax proposal at the National Press Club Tuesday. Meanwhile, the so-called "Gang of Eight" — a bipartisan caucus of senators — kicked off a series of meetings in Mount Vernon, Va., on the same day, starting with a sit down with Alan Simpson and Erskine Bowles.
The plans are still in very early stages, and there are a lot of moving parts in this debate. But the dueling plans do form the basic templates that Congress will work from when members try to tackle budget negotiations after the election.
For now, here's where the plans stand:The Simpson Bowles Plan
In 2010, Obama commissioned a bipartisan commission to make a proposal to reduce the deficit.
The commission, co-chairs chaired by former Clinton chief-of-staff Erskine Bowles and former Republican Senator Alan Simpson, came up with a plan, but it failed to pass, even among the commission's own members.
The so-called Simpson-Bowles plan has detractors on both sides of the aisle, but has come back in fashion gaining traction among both Obama and Republican presidential candidate Mitt Romney. The "Gang of Eight" is now using the plan as a template for their own deficit reduction proposal.
Here's the gist of the proposal:
- $200 billion reduction per year in discretionary spending, including a 15% reduction in defense procurement, closing one third of overseas bases, cutting the federal workforce by 10% and eliminating earmarks.
- $100 billion in increased tax revenues, possibly including a 15 cent per gallon gasoline tax and the cancelation of tax deductions like the home mortgage interest deduction.
- Reduce entitlements like farm subsidies, student loan subsidies, and federal pensions
- Raise the retirement age for Social Security and raise the payroll tax.
- Cut corporate tax rate from 35% to 26%.
On Tuesday, Schumer broke with the "Gang of Eight," and outlined his own broad proposal for deficit reduction and tax reform.
In a departure from the Simpson-Bowles plan, Schumer's proposal is aggressive about raising revenue to cut the deficit, specifically by raising the capital gains tax rate, which is now 15 percent.
His plan would also e liminate certain tax "loopholes," and raise the income tax rate for the highest earners to Clinton-era levels. And he has mentioned cutting, but not fundamentally altering, entitlement programs like Medicare, and lowering the corporate income tax.
According to the New York Democrat, halving the tax on capital gains tax under the Reagan administration has led to pronounced income disparity. Schumer wants to increase it to a higher — but still historically low — level.
But it's the proposed increase on the capital gains tax rate to Reagan-era rates (between 20 and 28 percent), that could make a serious dent in the deficit, if Republicans can stomach it .The Ryan Plan
Paul Ryan's Path to Prosperity plan also lays out plans for tax reform.
Here are the plan's "key points:"
- Remove loopholes and lower income tax rates
- Consolidate the current six individual income tax brackets (10%, 15%, 25%, 28%, 33%, 35%) into just two brackets (10% and 25%) and repeal the alternative minimum tax.
- Reduce the corporate income tax rate to 25%
- Broaden the tax base
One thing to keep in mind is that Ryan formed this plan in his capacity as House Budget Committee Chairman, not as the Republican Party's vice presidential nominee. Since joining the Romney ticket, Ryan has signed on to the Romney plan.
Still, the Romney plan was heavily influenced by the Ryan plan, with a few exceptions: Romney's plan keeps the corporate tax rate reduction and loophole removal, but not the bracket consolidation and alternative minimum tax repeal.
More From Business Insider
- Joe Biden's Image Has Sunk Dramatically In The Past Four Years
- Mitt Romney Storms Ahead In Another National Poll, Wiping Out A Huge Pre-Debate Obama Lead
- JON STEWART: Obama's October Surprise Is That 'He Has Given Up'
- Politics & Government
- Budget, Tax & Economy
- income tax