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Tax Breaks Exceed $1 Trillion
I'm not quite sure I understand the R snark about this report - wasted taxpayer money on creating the report, perhaps? - but I think seeing the big picture is useful. Aside from the eye-popping number, I suspect many people don't think of the exclusion of employer health insurance, for example, as "tax break." From today's WSJ:
A congressional report detailing the value of major tax breaks shows they amount to more than $1 trillion a year?roughly the size of the annual federal budget deficit?and benefit wide swaths of the population.
The figures could be useful to lawmakers of both parties and President Barack Obama, who are looking for ways to shrink future deficits and offset the anticipated cost of overhauling the much-criticized U.S. tax code, an effort likely to include tax-rate cuts. Both parties are looking to trim or eliminate tax breaks to achieve those goals.
Mr. Obama has suggested eliminating breaks for corporate jets and oil and gas companies to reduce deficits. He also has raised the possibility of reducing tax breaks for U.S. multinationals that ship jobs overseas, as a way to offset the cost of lowering the corporate tax rate to 28% from the current 35%.
House Republicans proposed in their new budget this week to reduce or eliminate an unspecified array of tax breaks in order to offset the costs of lowering top tax rates for both corporations and individuals to 25% from the current 35%.
The new report, by the nonpartisan Congressional Research Service, underscores how far-reaching many of the tax breaks are, which makes changing them a politically daunting task.
They include the exclusion from taxable income for employer-provided health insurance, the biggest break, at $164.2 billion a year in 2014; the exclusion for employer-provided pensions, the second-biggest, at $162.7 billion; and the exclusions for Medicare and Social Security benefits.
Other big breaks include the mortgage-interest deduction, third-largest; taxing capital-gains income at lower rates than other income; the earned-income credit for the working poor; and deductions for state and local taxes.
The report, citing political opposition, technical challenges and other reasons, said that "it may prove difficult to gain more than $100 billion to $150 billion in additional tax revenues" by eliminating tax breaks. That likely would leave little for reducing tax rates, perhaps only enough for one or two percentage points in the top individual rate, while maintaining the same level of revenue, the report said.
House Republicans dismissed the report's significance, saying it only confirms that overhauling the tax code will be politically challenging. They pointed to the work of Mr. Obama's 2010 deficit-reduction panel, co-chaired by former White House chief of staff Erskine Bowles and former Sen. Alan Simpson, as evidence that large-scale tax changes are possible. The Bowles-Simpson panel drafted a deficit-reduction plan that would trim tax breaks and lower to 28% the top tax rate for businesses and individuals, though the overall plan failed to draw enough support to gain congressional votes.
"Reports suggesting that tax reform isn't easy are greatly appreciated," a House GOP aide said. "Probably tomorrow there will be a report saying the Earth is round."
The top-ranking Democrat on the House Ways and Means Committee, Rep. Sander Levin of Michigan, said the report foreshadows a difficult fight over tax breaks that will pit the interests of middle-class households against those of higher earners.
"Some of the most popular tax provisions?including the exclusion for health coverage and the deduction for mortgage interest?largely benefit middle-income families," Mr. Levin said in a statement.
House Republicans point to data showing that upper-income taxpayers benefit much more per capita from tax breaks than lower earners, so reducing breaks across the board would maintain a progressive system, they say.
Re: Tax Breaks Exceed $1 Trillion
Some guy in my town has started his own super pac.
It is basically going to start airing ads saying "we already have the answer, implement Bowles Simpson report recommendation now.
Above Us Only Sky
I would be on board with these:
Mr. Obama has suggested eliminating breaks for corporate jets and oil and gas companies to reduce deficits. He also has raised the possibility of reducing tax breaks for U.S. multinationals that ship jobs overseas, as a way to offset the cost of lowering the corporate tax rate to 28% from the current 35%.
I would also eliminate mortgage interest being tax-deductable (we cant do that here until its an income property). A lot of Canadian mortgage lenders that I work with here feel very strongly that having that loophole doesn't encourage people to pay off their mortgages faster. At least thats what they said when you were experience the mortgage crisis.
I know this is simplifying the issue, but if they are trying to reduce the tax rate to 28% in order to keep businesses from leaving the US, but at the same time they also reduce corporate tax breaks...won't the two actions somewhat offset each other? I'm not going to bring my business into the US for lower rates if I will also be losing tax breaks I could get somewhere else.
They do really need to do something about the corporate rate, though. From a global perspective, it's just about the highest rate - Canada's down to 25% by 2015, Netherlands just lowered to 25%, UK lowered to 26% - even Belgium is lower at 33.99%. There's no incentive to move business into the US, and a definite incentive to move it out if you're a global company that can easily shift its operations.
Germany 2012
I think part of the problem is that in order for the US to lower the corporate tax rate - lets say to 25% to compete with Canada - is they would need to increase the personal tax rate to offset those revenue losses. Obviously here in Canada we have higher personal tax rates so we can keep the corporate rate lower. However, what politician will ever be elected on the premise of raising personal income taxes?!?
Also - sorta off-topic but I've read some research that suggests that what makes Canada attractive for businesses relocating from the US is universal health care, because the costs to the US companies for providing health care is quite high. So the tax rate is part of it, but not the whole picture. I have to jet so I'm sorry for not providing a source!
Oh, yeah, obviously it's not just a matter of waving a magic tax wand. And it's easy to sit in our Canadian glass tower and nod sagely about how well things work up here.
And we have a debt and a deficit up here (not as high as the US, obv) - the Cons have promised to eliminate the deficit in the next 2 years, I think, so they'll have to do something.
Germany 2012
It's pretty straightforward, they don't want any attention drawn to how much tax cuts cost, they want to cut spending and taxes simultaneously to keep the deficit high.
Doesn't the conservative plan not balance the budget till 2016? I looked it p recently when I was protesting the waste of money new crime bill.
Confession: I didn't bother to Google to learn more, but some of the tax breaks they mention are only relevant for individuals who itemize. Is the total cost the cost of the tax break, which is meaningless, or is it reduced in some manner to take into account that without itemized tax breaks individuals would still take the standard deduction? I wonder also if they've broken it down to look into (for example) with the mortgage deduction how the breaks are distributed, i.e., are a relatively few number of individuals taking a massive tax break. or is the greater contribution from large numbers of individuals taking a relatively modest break.
Hmm, apparently it was promised by 2015/2016, but Flaherty has been hinting it could be sooner. I guess we'll see next week whether they're on track - I'm sure there will be discussion of the timeline when the budget drops.
Germany 2012
I hope so. I'm not a huge Harper fan but if he delivers a balanced budget I will be pleased.
I'm curious to see if they announce changes to OAS or the CPP - I'm a huge supporter of raising the OAS to 67 from 65, provided that it doesn't take effect immediately so that those requiring changes to their financial plan can do so accordingly. I'd perhaps implement the changes in 10 years.