real tax policy

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.

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.”