Building on the work of the President’s deficit commission, a bipartisan group of six U.S. Senators is reported to be working on legislation that could force mandatory changes to the tax code, limiting tax expenditures such as the mortgage-interest deduction. The group would divide the task of deficit control into four categories: tax, discretionary spending, Medicare/aid and other entitlements, and Social Security, each with its own spending caps.
As part of its overall scheme, the group’s proposal would order the House and Senate tax writing committees to overhaul the tax code – – eliminating deductions and lowering rates – – and to report legislation to the House and Senate to raise a target amount of revenue within two years.
If Congress failed to meet the target for new revenue, the budget group’s legislation would require a mandatory across-the-board limitations on all tax deductions. Under the existing outline of a plan, this would affect everything from the deduction for losses due to theft, to the state and local tax deduction, to the exclusion for employer-provided healthcare that was a battle ground in last year’s healthcare debate.
The current members of the group include Senators Tom Coburn, Mike Crapo, and Saxby Chambliss on the Republican side. On the Democratic side: Senators Richard Durbin, Kent Conrad, and Mark Warner. They represent a diverse group of states and only two sit on the Budget Committee. Three serve on Finance.
The White House is said to be supportive of the gang’s efforts and other Senators are taking it seriously. Reportedly, Senator Schumer asked the White House not to support of any deficit reduction plan that would affect Social Security in a meeting at the White House on Wednesday.
Austan Goolsbee, Chair of the Council of Economic Advisors, at 2:29, promotes the White House proposal to make permanent the zero capital gains rate for small business stock (IRC Sec. 1202) as part of it’s “Startup America” initiative. The Kauffman and Case Foundations have founded a connected non-profit organization with the same name.
On Tuesday, February 8th, the Senate Finance Committee is scheduled to consider the Chairman’s proposed tax title to the FAA reauthorization bill (S. 223). Under the legislation proposed by Committee Chairman Max Baucus, the tax structure for commercial aviation would remain the same, but non-commercial aviation would see a substantial increase in the fuel tax per gallon for jet fuel from 21.8 to 35.9 cents. Fractionals would see an additional surtax of 14.1 cents per gallon for jet fuel.
Fractional programs are FAA regulated joint aircraft ownership programs that have grown up in recent years to allow more efficient use and ownershp of business aircraft. They are competitors of the commercial carriers in the high-end segment of the business travel market.
Here is a summary:
* Base tax not including the 0.1 cent Leaking Underground Storage Tank tax.
Under present law, transportation as part of a fractional ownership program is treated as commercial aviation. The lower 4.4 cent per gallon fuel tax applies and the 7.5% passenger tax applies to the amount paid for transportation, as well as the $3.70 segment tax. Under the proposal, fractional transportation would be treated as non-commercial. The regular 35.9 cent/gallon tax would apply, and Congress would add a 14.1 cent/gallon surtax specifically for fractional travel.
In testimony before the Senate Budget Committee, former Bush White House economist Lawrence Lindsey described the current income-based tax system as a “self-inflicted wound” in the economic competition between the United States and its major trading partners.
He advised Senators on the Budget panel to abandon all income-based levies and raise revenue exclusively through “a cash-flow based tax such as a Business Receipts Tax or even a Value Added Tax.”
In an article today, the New York Times published the results of a study it commissioned on the total tax paid by S&P 500 companies over the past 5 years. According to the article, the average total tax rate for these companies was 32.8%, including federal, state, local, and foreign corporate taxes. Nearly a quarter of the S&P 500 (115 firms) paid less than 20% of corporate income to all levels of the U.S. and foreign governments, and the article singles out a few firms with lower rates.
The article implicitly criticizes the place of incorporation rule, suggesting that Carnival (incorporated in Panama) should be treated as a U.S. corporation, because “its executives sit in Miami” and “many passengers board in Baltimore, Los Angeles, Miami, New York, and Seattle.”
The zero percent capital gains rate for certain investments in small business stock would be made permanent as part of the President’s recently announced “Startup America” campaign, aimed at promoting business formation. In an article in the Wall Street Journal, the reaction of small business investors was positive, but some said Congress and the White House can do more to promote investment in startups. Mark Heeson, president of the National Venture Capital Association pointed out that the small business stock rule has many limitations, such as a prohibition on investment in hotels and restaurants. Payson Peabody, Of Counsel with Dykema in Washington, DC and an advisor to the Angel Capital Association said the tax break doesn’t go far enough to trigger the level of new investment that would jumpstart the economy.
The Senate Democratic and Republican leaderships today announced the newest members of the Senate Finance Committee. Senators Coburn and Thune will join the Committee on the Republican side. Sen. Ben Cardin will join the end of the dais in the Democratic side.
Note: Earlier, Senator Isakson was rumored to have won a seat on the Republican side. The full Senate must still ratify the selections, but that is largely a formality.
The House Committee on Ways & Means announced today that it will hold the first of a series of hearings on fundamental tax reform on Thursday, Jan. 20th.
According to the announcement, marginal income tax rates have increased and the tax based has narrowed since 1986 when Congress last enacted fundamental tax reform. The Committee will consider how the current Federal income tax with its myriad tax preferences “discourages job creation and economic growth.”
Quoted in the hearing announcement, Chairman Dave Camp says “we have one of the highest corporate tax rates in the world, and our small businesses are struggling with continued uncertainty about individual tax rates and new regulations. It is this Committee’s responsibility to examine ways to reform the code so that it won’t be a continued barrier to economic growth and job creation.”
According to University of Maryland economics professor Peter Morici, the latest U.S. census figures show that sun-belt states with a favorable tax and business environment, such as Texas and Florida, are attracting more immigrants. High tax northeastern and midwestern states are losing population.