reforming our tax system, reducing our deficit

7/30/2019 Reforming Our Tax System, Reducing Our Deficit

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Reorming Our Tax System,Reducing Our Defcit

Roger Altman, William Daley, John Podesta, Robert Rubin, Leslie Samuels,Lawrence Summers, Neera Tanden, and Antonio Weiss

with Michael Ettlinger, Seth Hanlon, Michael Linden

December 2012

www.americanprogress.o


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Reorming Our Tax System,Reducing Our DefcitRoger Altman, William Daley, John Podesta, Robert Rubin, Leslie Samuels,

Lawrence Summers, Neera Tanden, and Antonio Weisswith Michael Ettlinger, Seth Hanlon, Michael Linden

December 2012

Noe om he auhors: As in any collaboraive process, here has been much give

and ake among he paricipans in developing his nal produc. We all subscribe o

he analysis and principles ariculaed here, o he need or revenue levels a he levelproposed, and o he need or spending reducions. We also generally agree wih he

provisions o he plan. Tere may be specic maters, however, on which some o us

have diferen views.


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Contents 1 Introduction and summary

5 On the need or more revenue

6 Why the additional revenue must come from high-income households

9 A progressive tax reorm

11 Tax rates

12 Cleaning up the tax code

15 Simplifying filing

16 Other taxes

17 The spending side o the equation

20 Bottom line

22 About the authors

24 Acknowledgements

25 Endnotes


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Introduction and summary | .americanprogress.

Introduction and summary

Tere are very ew hings everyone in Washingon can agree on hese days. Bu

he one noion ha will ge heads nodding across he poliical specrum is ha

odays scal policies simply are no susainable. I we keep doing wha weve

been doing, no only will he ederal budge say permanenly deep in he red bu

criical public invesmens such as educaion and inrasrucure will coninue o

go underunded. Key naional prioriies such as srenghening he middle class,

reducing povery, and building a world-class inrasrucure will remain unad-

dressed. Income inequaliy will coninue o rise, condence in Americas abiliyo govern is scal aairs will coninue o all, and sooner or laer we will nd our-

selves sruggling hrough anoher economic crisis. Clearly, hese are all oucomes

ha we mus avoid. Ta is why nearly everyonele, righ, and ceneragrees

ha changes in scal policy will be necessary.

Te nonparisan Congressional Budge Oce esimaes ha i we do no change

course, annual ederal budge decis will never drop below $800 billion. ax

revenues will cover only 80 percen o ederal spending, which means we will have

o borrow 20 cens or every dollar we spend. As a resul, publicly held deb, mea-

sured as a share o our naional economy, will rise rom abou 73 percen oday o

nearly 90 percen by he end o he decade, according o curren projecions.1

Ta is a budge rajecory raugh wih serious risk. No one knows wih precision

when our deb levels will become so burdensome ha hey rigger severe eco-

nomic consequences. Bu here are ew who would disagree ha such a level does

exis, and ha we would do well o avoid nding ou exacly wha ha level is. For

ha reason, budge expers and economiss rom all perspecives agree wih he

goal o prevening such a reacherous rise in he deb-o-GDP raio.

o do so does no require radically decreasing our decis immediaely as we con-

inue o recover rom he Grea Recession o 20072009. Insead our goal should

be o reduce our deci o sabilize he deb-o-GDP raio a a responsible level in

he medium erm. We can achieve his by lowering our annual budge decis o a


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2 Center or American Progress | Reorming Our Tax System, Reducing Our Deicit

level where any new deb incurred in a given year is smaller han overall economic

growh ha year. Under normal economic condiions, his means decis o

approximaely 3 percen o GDP or lower. Tough sill lower decis are desirable

when he economy is a ull employmen and operaing a poenial GDP, geting

decis under 3 percen o GDP would address he mos pressing concern in he

medium erm and pu he budge on a sound ooing.

Accomplishing ha criical goal is going o be dicul. Deci reducion is always

hardaer all, i means cuting back on public services and programs ha are

imporan o he naion, and i means raising axes.

Tis repor oers a plan o achieve meaningul deci reducion over he nex 10

years ha ress on wo pillars:

Progressive, revenue-enhancing, ecien, simpli ying, and pragmaic ax reorm

Pragmaic spending cus ha do no undermine he middle class, he poor, or seniors

Firs, we should recognize our revenue problem. Repeaed ax cus played an

ousized role in creaing he budge decis o he las decade and hey have hur

our counry. As Oliver Wendell Holmes said, axes are wha we pay or civilized

sociey. Tey pay or he oundaional public invesmens ha are criical o a

modern prosperous sociey, such as inrasrucure, educaion, and basic scienic

research. Tey pay or services ha only he governmen can eecively perorm,

such as naional deense and ensuring clean ood, sae consumer producs, and

clean waer. axes make i possible or us o mee our socieal obligaion o care

or our veerans, our aged, and our impoverished. And axaion allows us o over-

come naional challenges and achieve exraordinary eas. Apollo 11, he Hoover

Dam, and he Inerne were all nanced wih ax revenues.

Curren ederal revenue levels are a heir lowes levels since he 1950s. And he

assumpion ha all o he ax cus scheduled o expire a he end o his year will

coninue is he single-larges reason why budge expers expec ederal decis o

remain ar oo high over he nex 10 years.2 Clearly we have a big revenue problem.

When hinking abou where he revenue we need should come rom, he saringpoin should be ha our ax sysem mus be progressive. From Adam Smih down

o oday, i has been a long-recognized principle ha hose wih higher incomes

should pay a higher share o heir income in axes because hey have he abiliy o

pay and have beneed he mos.3


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Introduction and summary | .americanprogress.

Aer all, no one disagrees ha, o ake a hypoheical example, a 10 percen ax on

a amily making $50,000 has a ar greaer impac on he lie o ha amily han a 10

percen ax on a amily making $5 million. And hose a he op o he income lad-

der bene signicanly rom our civil sociey, public invesmens, he proecions

axes pay or, and all our naion provides. Is only air ha he beter o be asked

o pay a larger share o he bill.

And, in ac, our ax sysem is progressive. Bu over he las several decades, he

rend has been o ask less and less o hose a he op. Te very highes-income

households have enjoyed subsanial ax cus, even as heir incomes have risen:

From 1979 o 2007, or example, he preax incomes o he op 1 percen more

han ripled, while heir ax raes declined by abou one-h.4 And while, on aver-

age, higher-income Americans do pay higher ederal ax raes han middle-income

Americans, here are oo many high-income households or whom ha general

rule does no apply.

Finally, i is imporan o remember ha he ederal income ax is only one piece

o a larger naional ax sysem. Mos o he oher piecesexcise axes, payroll

axes, sae and local axesask much less o high-income households han hey

do o low- and moderae-income households. aken ogeher, our naional ax

sysem is already less progressive han i migh appear, which is one reason why is

so imporan or he ederal income ax o be subsanially progressive.5

In addiion o concerning ourselves wih progressiviy as we address he need o

raise more revenue, we should also address he ac ha he curren ax code is

oo complex. I conains oo many narrowly argeed special ineres breaks. In

some cases hese special preerences creae economic ineciencies ha can no

longer be jusied. Tey also erode Americans aih ha he ax code is reaing

everyone airly.

Our ax reorm plan addresses hese ailings. Firs and oremos, i would redesign

he income ax code so ha i will generae adequae levels o revenue o mee

our crucial scal goals. Over he nex 10 years, our ax reorm would pu us on a

sronger scal ooing by raising $1.8 rillion and, by he end o he decade, mach-

ing he overall levels o revenue proposed by scal commission co-chairs AlanSimpson and Erskine Bowles as par o heir biparisan deci reducion plan.

Tough hese proposed revenue levels will likely be insucien or he counrys

long-erm needs, hey are enough o do he job in he medium erm. And given

heir biparisan pedigree, hey provide a realisic arge.

The very highesincome househ

have enjoyed

substantial tax

cuts, even as the

incomes have ri

From 1979 to 20

or example, the

pretax incomes

the top 1 percen

more than triple

while their tax ra

declined by abo

one-th.


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Our ax plan would raise his revenue in a progressive way, asking hose in

he op income brackes o pay more. On average, households making less

han $100,000 would pay a litle less han hey do now, hose making beween

$100,000 and $250,000 would see only iny increases, and he ax hikes up o

$500,000 would be small.

Our reorm would also simpliy he ling process and sreamline he code so ha

everyone could rus ha each axpayer is being reaed airly. I does his by urning

cerain deducions ha currenly avor hose in he highes ax brackes ino cred-

is ha will besow equal benes. Our plan would ax dieren sources o income

much more equally han he curren code does. I would remove he alernaive

minimum ax, repeal oher provisions ha add complexiy, eliminae unjusied ax

loopholes, and reduce he number o axpayers who would have o iemize.

O course deci reducion will no be limied o ax reorm. Spending reorm will

also be necessary. I is imporan o noe ha he ederal governmen has alreadycu spending subsanially. In he las wo years, Presiden Barack Obama has

signed ino law $1.5 rillion in spending cus over he nex decade.6 We propose

hundreds o billions o dollars in addiional spending savings ha can be achieved

wihou reducing reiremen or healh benes, wihou shredding he social

saey ne, and wihou urher disinvesing in Americas uure.

Te resul is a comprehensive deci reducion plan ha will subsanially reduce

our uure decis, se he budge on a sound course or he coming decade, and

bring our deb-o-GDP raio below 72 percen by 2022.


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On te need or more revenue | .americanprogress.

On the need for more revenue

Our ederal ax code is ailing a is mos imporan and basic ask: raising

adequae revenues o und he services and operaions o governmen. Over he

las our years, he eecs o repeaed ax cus and a weak economy combined o

produce he lowes levels o ederal revenue, measured as a share o our naional

economy, in nearly six decades. I we keep he curren ax code he way i is oday,

ederal revenues will say ar below ederal spending levelseven wih signican

spending cusor he nex decade and beyond, producing unsusainable and

evenually dangerous levels o deb. Te ax code needs o be reormed so ha igeneraes higher revenues.

According o Congressional Budge Oce projecions, mainaining odays ax

code will resul in revenues averaging abou 18 percen o gross domesic produc

over he nex decade. From 1998 o 2001he las years in which we had bal-

anced budgesrevenues averaged abou 20 percen o GDP. And in he inerven-

ing years, our populaion has aged, baby boomers have sared o reire, healh care

coss have risen, and our naional securiy needs have changed dramaically.

O course sabilizing our publicly held deb and seting i on a downward rajec-

ory will cerainly require spending reducions in addiion o new revenues. Bu

because he revenues generaed by our curren ax code are so inadequae, o

accomplish ha goal enirely hrough spending cus would require cubacks o

such a magniude ha, because o he economic damage and human suering hey

would cause, hey would simply be bad policy -- and, or good reason, poliically

unpopular. Domesic discreionary spendingwhich includes mos o wha

governmen does ouside o he miliary and he big enilemen programs such

as Social Securiyis already se o drop o levels lower han a any ime since he

caegory was creaed in 1962.

In ac, nearly all independen expers and biparisan commissions on deci

reducion have come o he same conclusion. Te mos well-known o hese

eorshe plan ha came ou o he 2010 biparisan scal commission


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(Simpson-Bowles)recommended addiional revenue o approximaely $2.2

rillion over he nex 10 years.7 Under heir plan revenues would reach abou 19.6

percen o GDP by 2017 and 20.3 percen o GDP by 2021. Revenues a ha level,

combined wih spending cus, produce ederal budges ha avoid piling on deb a

a rae aser han overall economic growh.

While he Simpson-Bowles levels o revenue are cerainly higher han he level o

revenues we see oday and higher han he levels over he pas decade, hey would

sill be below hose o he lae 1990s. And hey would no be enough o ully bal-

ance he budge, nor o allow he counry o boos criical invesmens.

Neverheless, jus as here are many who would argue hese levels are oo low,

given he needs o he counry, he changing demographics, and rising healh

care coss, here are also hose who would argue hese levels are oo high. Te

Simpson-Bowles levels are a middle ground beween hose wo camps, as bes

a biparisan compromise. For he plan described below, we adop as our long-erm revenue arge he Simpson-Bowles revenue level o 20.3 percen o GDP by

2021no because we embrace i as ideal bu because, as a biparisan compro-

mise, i is realisic.

Why the additional revenue must come from high-income

households

Generaing addiional revenue is clearly a necessary componen o any pracical

plan o address our medium- and long-erm budge challenges. Bu simply hi-

ing a revenue arge isn enough. I also maters a grea deal how ha revenue is

raised, and rom whom.

Over he las 30 years, income inequaliy has skyrockeed. From 1979 o 2007

he average household income among he op 1 percen grew by more han 266

percen, adjused or infaion. Over he same period, he average household in he

middle o he income disribuion saw is income rise abou one-sevenh as as.8

Even as hose a he op gained, heir ederal ax raes shrunk. In he middle o he1990s, a household in he op 1 percen could expec o pay abou 35 percen o

heir income in ederal axes. Over he nex decade, ha rae ell seadily unil, by

2007, heir average ax rae was down o jus more han 28 percen.9


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On te need or more revenue | .americanprogress.

Ideally, no one would have o pay higher axes, bu i we do need o raise new

revenueand we dohen i is reasonable ha i rs should come rom hose

who can mos aord i and who have beneed he mos economically. And wih

growing incomes and alling ax raes, hose a he very op o he income ladder

can cerainly aord o pay a bi more.

Criics will conend ha raising axes on hose wih high incomes will depress eco-

nomic growh. Some o he more aggressive proponens o his view will even go so

ar as o say ha raising axes won generae even a single new dollar in revenue on

ne because he economic drag will be so large. Tis noionha higher axes or

higher earners are bad or he broader economyhas some undersandable basis in

heory. Aer all, i is no hard o see how a 100 percen ax rae on income above a

cerain hreshold would resul in dramaically reduced economic aciviy.

Te evidence ha his eec exends down o raes much lower han 100 percen,

however, is ar less persuasive. In ac, he vas preponderance o evidence suggessha ax raes a or near heir recen levels are signicanly below where hey would

need o be o have any measurable economic eecs.10

Indeed, he real-world experience o raising axes on hose wih higher incomes

in he 1990s and cuting hem in he 2000s srongly suppors he view ha

higher axes or hose a he opin he range seen in he Unied Saes in recen

decadesdon depress growh, and lower axes don spur i. In 1993 when

Presiden Bill Clinon raised axes on he op income earners, his opponens

argued loudly ha such ax hikes would mean economic decline, wih some even

promising lower ax revenues as a resul. Needless o say, hey were proven wrong

in specacular ashion wih he longes period o economic growh in U.S. hisory,

increased business invesmen, 23 million jobs added, and, o course, budge sur-

pluses.11 Eigh years laer, Presiden Bush promised ha his ax cus would spark

an economic boom. Ta boom never maerialized, bu renewed large decis did.

In addiion o he clear hisorical record, sudy aer sudy has ound no relaion-

ship beween deci-nanced ax cus and economic growh.12

Raising new revenue is criically imporan o he scal and economic healh o

he naion. I is equally imporan o raise new revenue in a air and ecien way.Wih income inequaliy on he rise and a decade-long rend o lower axes or

hose wih he highes incomes, here can be no doub ha any addiional revenue

mus rs come rom hose a he op o he income ladder.

Indeed, the real

world experienc

o raising taxes o

those with high

incomes in the

1990s and cuttin

them in the 200

strongly suppor

the view that

higher taxes or

those at the top

in the range see

the United State

recent decades

dont depress

growth, and low

taxes dont spur


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A progressive tax reorm | .americanprogress.

A progressive tax reform

Our plan o reorm he ederal individual income ax will raise adequae rev-

enues progressively while making he ax sysem more ecien, simple, air,

and comprehensible. Under our plan, by he middle o he end o his decade,

ederal revenues will mach hose revenue levels recommended by he Simpson-

Bowles plan. (see Figure 1)

Tis increase is accomplished while cuting

axes or all income groups wih annual incomes

less han $500,000, relaive o wha hey wouldpay under he ax code ha becomes law on

January 1, 2013ha is, relaive o so-called

curren law. Relaive o he ax code in eec in

2012curren policyhere are ax reduc-

ions on average or hose wih incomes less

han $100,000 per year, iny increases on hose

wih incomes rom $100,000 o $250,000, and

small increases on hose wih incomes rom

$250,000 o $500,000. By reorming our ax

sysem in a progressive manner, we raise needed

revenue and reduce aer-ax income inequaliy.

(see able 1 on page 11)

Te key eaures o our plan are:

A op marginal ax rae or he personal income ax o 39.6 percen as i was

under Presiden Clinon A op marginal ax rae o 28 percen on capial gains as i was under Presiden

Ronald Reagan and hroughou much o he 1990s Convering ax deducions o ax credis Closing ax loopholes Simpliying he ax sysem by reducing he number o lers who iemize, repeal-

ing he Alernaive Minimum ax, and oher reorms

FIGURE 1

Revenue, as a share o GDP, 2012-2022

Current lawSimpson-Bo

CAP plan

Obama Budg

Current polic

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

25%

2012 2014 2016 2018 2020 2022

Source: CBO, Moment o Truth Project, Center or American Progress calculations.


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Personal exemptions, standard deduction, itemized deductions:

Replaced with a standard credit ($5,000 or couples and $2,500 or

singles) and 18 percent itemized credits, except charitable contributions

would generally receive an itemized credit o up to 28 percent. Taxpay-

ers would have the choice o claiming the standard credit or itemized

credits. The impact o the eective reduction o the mortgage interest

tax preerence or those in higher tax brackets is phased in over time.

Dependent exemption: Replaced with an expanded child tax credit

o $1,600. Child credit is reundable under todays rules and the

phaseout point is lited to $200,000. A $600 nonreundable credit is

available or nonchild dependents.

Capital gains and dividends: Tax capital gains at a maximum 28percent rate (including the Medicare tax that goes into eect in 2013)

and dividends as ordinary income.

Health care exclusion: The value o the exclusion is limited or those

with earnings in excess o $250,000 per year to 28 percent.

Marginal tax rates:

Earned income tax credit: Recent EITC enhancements are perm

nently extended.

Personal exemption phaseout, or PEP, and itemized deduct

limitation, or Pease: Eliminated.

Alternative minimum tax: Eliminated.

Estate tax: Exemption o $2 million per individual$4 million

couple and 48 percent top rateindexed or ination. Close lo

holes in the estate and git tax as proposed by President Obam

Other elements:

50-cent increase in cigarette tax Tax on alcoholic beverages at a uniorm $16 per proo gallon

Regulating and imposing small ees on Internet gambling

Permanent extension o the research and experimentation, o

tax credit and clean energy incentives

Corporate tax reorm that increases corporate tax revenues b

percent and results in a lower statutory rate

$12 billion in savings rom reorms to tax-preerred retireme

savings plans.

Elimination o carried interest loophole and S corporation

care tax loophole

Note: Numbers and amounts are or the 2017 tax year. All param

would be indexed or infation according to the chained consume

index.

Our proposed tax reorm at a glance

Couples Singles

$0$100,000: 15% $0$50,000: 15%

$100,000$150,000: 21% $50,000$75,000: 21%

$150,000$200,000: 25% $75,000$150,000: 25%

$200,000$422,000: 35% $150,000$422,000: 35%

$422,000 and above: 39.6% $422,000 and above: 39.6%


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A progressive tax reorm | .americanprogress.o

Tax rates

Our plan keeps he op individual income ax rae a 39.6 percenhe same as

i was under Presiden Clinonrom 1993 hrough 2000. Tere has been much

alk o lae regarding lowering he op marginal income ax rae. Ye he hisorical

record srongly suggess ha raes below he 39.6 percen ha we propose would

have litle meaningul posiive eec on work incenives or economic growh.13 O

course 39.6 percen was he op rae during he economic successes o he 1990s,

and raes were even higher during many o he oher sronges periods o U.S.

economic growh.14 (see Figure 2 on ollowing page)

Despie he evidence ha lowering he op rae will have litle, i any, posiive

economic eec, he argumen persiss ha we should do so. And while much

atenion has been paid o he idea o lowering he op rae, very litle has been

paid o how much ax raes can be lowered while raising adequae revenue and

doing so progressively.

Many grand claims have been made claiming ha raes can be subsanially low-

ered and he revenue-loss ose by eliminaing ax expendiureshose deduc-

ions, exempions, exclusions, credis, and oher special provisions ha reduce ax

tablE 1

Our plans distributional eects, tax year 2017

I ncome group Ave rage incomeAverage tax change

rom current policy

Average tax change

rom current law

$Percent o pretax

income$

Percent o pretax

income

$0-$25,000 $15,800 131 0.8% 450 2.8%

$25,000-$50,000 $36,500 279 0.8% 1,035 2.8%

$50,000-$75,000 $61,500 304 0.5% 1,538 2.5%

$75,000 -$100,000 $86,900 164 0.2% 2,233 2.6%

$100,000-$250,000 $145,700 +468 +0.3% 4,287 2.9%

$250,000-$500,000 $334,400 +5,509 +1.6% 4,941 1.5%

$500,000-$1,000,000 $677,000 +18,078 +2.7% +608 +0.1%

$1,000,000 or more $3,137,300 +155,700 +5% +35,658 +1.1%

Notes: Tables reect plans income and excise tax changes, ully phased-in, except or retirement savings, carried interest, and I nternet gambling proposals. Current policybaseline assumes the extension o the income tax cuts enacted in 2001, 2003, and 2009 and extended through 2012, and an AMT patch, but does not include the current

payroll tax holiday. Current law is the tax law that would take efect in 2013 (with no AMT patch). Source: Institute or Taxation and Economic Policy tax model and CAPcalculations (2017 tax year).


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liabiliy. Bu hose who make such claims rarely oer specic reorms ha make

he numbers add up. Te ew who have done so demonsrae jus how dicul and

unrealisic i is o make ha mah work. (see ex box)

Tis isn o say, by any means, ha ax expendi-

ures couldn or shouldn be reined in. In ac,i is by reining in ax expendiures, as described

below, ha we are able o preven he ax rae

rom rising above Clinon levels while genera-

ing adequae revenue progressively and simula-

neously simpliying he ax sysem.

Te 39.6 percen ax rae is he op rae we

propose or ordinary income, bu we also

address he op raes or dividends and capial

gains income ha have been cu subsaniallyin recen years. As wih he op rae on ordi-

nary income, hese lower raes on capial gains

and dividend income have no produced heir

promised economic benes and have enabled

many o he highes-income Americans o pay

exremely low overall ax raeslower han

people ar below hem on he income lad-

der.15 Furhermore, hese ax breaks or capial

income have conribued o he rapid rise in

income and wealh inequaliy. Our plan reas

dividends as ordinary incomeas hey were or 90 years preceding 2003and

resores he op capial gains rae o 28 percenhe same rae ha was in eec

aer Presiden Reagan signed he 1986 ax Reorm Ac and hroughou much

o he 1990s.16

Cleaning up the tax code

An imporan par o he new revenue in our plan comes rom reducing he valueo various ax expendiures. Under he exising ax sysem, many o hese ax

expendiures, such as hose or morgage ineres, chariable giving, and reire-

men savings, are upside-downha is, hey provide a bigger bene o hose in

higher ax brackes. Ta is boh unair and inecien.

FIGURE 2

Top marginal ederal tax rates since World War II

Combined individual income and payroll taxes on ordinary

income and capital gains

0%

20%

40%

60%

80%

100%

Top marginal tax rate

Top capital gains tax rate

Rates under CAP plan

1945 1955 1965 1975 1985 1995 2005 2015

2013

Notes: From 1970-1981, the top rate on unearned income other than capital gains (e.g. interest,dividends) was 70 percent. Beginning in 2003, the capital gains rate applied to qualied dividends aswell. Top rates includes the efect o the Pease limitation on itemized deductions or relevant years

and the Medicare tax.

Source: Center or American Progress calculation based on http://www.ctj.org/pd/regcg.pd.


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Our proposal addresses he upside-down problem while achieving signican,

progressive revenue increases by ransorming iemized deducions ino cred-

is. Mos expenses ha are currenly claimed as iemized deducions would be

ransormed ino nonreundable ax credis equal o 18 percen o heir value. Tis

would provide he same ax bene o axpayers in all ax brackeswih middle-

income axpayers beneing rom he change.

Under he curren ax code, or example, i wo amilies boh deduc $10,000 in

morgage ineres paid rom heir axable income, heir acual ax bene could

vary grealy. For a high-income amily in he 35 percen ax bracke, ha deduc-

ion would lower heir ax bill by $3,500. For a middle-income amily in he 15

percen bracke, ha same $10,000 deducion resuls in only $1,500 in ax savings.

Under our plan, since boh amilies paid he same amoun o morgage ineres,

hey would boh receive he same $1,800 ax bene.

Te excepion in our plan o he ransormaion o iemized deducions o an 18percen credi is or chariable conribuions. Tose conribuions will generally

be eligible or up o a 28 percen credi. Tus he subsidy or chariable giving will

be decreased or hose in higher ax brackes bu no decreased by as much as or

he oher orms o deducions. I should also be noed ha a he poin when our

plan is pu ino eec, a higher credi han 18 percen will be available or mor-

gage ineres expenses or hose axpayers or whom an 18 percen credi repre-

sens a reducion in bene relaive o he curren morgage ineres deducion.

Te morgage ineres credi will be gradually phased down o he 18 percen ha

is available or oher iemized expenses.

Our plan also replaces he sandard deducion wih a large sandard credi o

$5,000 or couples and $2,500 or singles. Te sandard credi largely serves he

same purpose as he exising sandard deducionrelieving mos axpayers o

he need o rack and iemize heir expenses or ax purposes.17 Currenly, only

abou one-hird o axpayers iemize heir expenses. Under our plan, abou 80

percen would claim he sandard credi and only abou one-h would iemize.

Oher ax expendiures are also sreamlined under our plan, including hose or

reiremen savings used by high-income axpayers. And our plan closes severaldicul-o-jusiy loopholes, including he carried ineres loophole ha allows

invesmen und managers o conver heir income ino low-axed capial gains,

and he so-called S corporaion loophole hrough which high-income proes-

sionals can avoid Medicare axes.


20/34


Our plan diers rom several other plans that propose to reduce

defcits while also reducing tax rateseven below the already-low

levels in eect today. The Simpson-Bowles plan and the Bipartisan

Policy Center plan, or example, would use a large portion o the

revenue gains rom cutting tax expenditures to reduce income tax

rates instead o reducing the defcit. That approach, o course, neces-

sitates much larger cuts in tax expenditures than would otherwise be

neededon the order o $4 trillion or more over 10 years. As a result,

these plans hinge on Congresss willingness to agree on tax expen-

diture reductions that we believe are politically unrealistic, economi-

cally and socially undesirable, or both.

To be sure, tax expenditures, which today reduce revenues by a total

o more than $1 trillion per year, can and should play a major role

in defcit reduction. But in setting the parameters or tax reorm,

Congress needs to be realistic in how much savings can be achieved

rom reducing tax expenditures and also needs to be cognizant o

the distributional consequences. To their credit, the Simpson-Bowles

and Bipartisan Policy Center plans illustrate the kinds o drastic policy

changes needed to achieve signifcant defcit reduction while also

lowering tax rates. We simply believe that the beneft rom lower

income tax rates as part o these defcit reduction proposals is not

worth many o the costs and dislocations.

Both the Simpson-Bowles and Bipartisan Policy Center plans, orexample, completely repeal the tax exclusion or employer-sponsored

health insurance, which benefts 160 million Americans who receive

health insurance through their jobs. Although some reasonable level

o savings can be achieved in this area, eliminating the health insur-

ance exclusion outright would hit the middle class, potentially disrupt

a health care system that is based primarily on employer-provided

insurance, and would increase costs or public health care programs.18

Both o these plans also eliminate the tax deduction or state and

local taxes paid. That deduction has some justifcation and entirely

eliminating it would mean that tax reorm would disproportion

burden residents o high-tax states. (Our plan strikes a compro

transorming it into an 18 percent credit.)

These plans also rely on other tax expenditure reductions that Co

would be extremely unlikely to agree to. The Simpson-Bowles and

partisan Policy Center plans, or example, derive hundreds o billi

dollars in savings rom assuming that Congress would entirely eli

a tax expenditure known as stepup in basis, meaning that all un

capital gainsincluding rom businesses or homes that have rise

valuewould be taxed upon a persons death. Given the politics

estate tax and capital gains, that seems extremely unlikely.

The Simpson-Bowles plan would also broaden the tax base by t

veterans benefts, workers compensation payments, oster care p

ments, public assistance benefts, and other orms o income tha

currently not taxed. We are deeply skeptical that Congress would

these choices deliberately. And that is why we would warn again

locking in a tax reorm ramework with lower tax rates that could

cessitate these drastic reductions in tax expenditures. To put this

spective, a Congressional Research Service report puts the numb

realistic tax expenditure reduction, annually, at between $100 bi

and $150 billionon the order o one-quarter or one-third o w

Simpson-Bowles and the Bipartisan Policy Center plans propose

Furthermore, both o these plans raise taxes on the middle clas

low-income Americans.20 Indeed, the decision to reduce the ma

rates paid by the highest-income Americans all but orces that

come. There are inevitable distributional tradeos between red

tax rates and reducing tax expenditures. While tax rate reductio

disproportionately beneft high-income households, the larges

expendituresaside or investment tax breaksbeneft house

o all income levels, and deep reductions in those tax expendit

can easily outweigh the beneft that middle-class and low-inco

households receive rom cuts in tax rates.

Why not lower the rates?


21/34


Finally, i should be noed ha here are many oher provisions o he ax code

o be reviewed and evaluaed. Some o hese have creaed openings or creaive

accouning o avoid he esae ax, ways o make ordinary income look like lower-

axed capial gains, and sraegies ha allow reiremen accouns and lie insurance

o be used o avoid axes ar beyond wha was originally inended. Some o hese

provisions are well known and have been evaluaed, and we know how much heycos in revenue. We have explicily included addressing some o hem in his plan.

Ohers, however, are less well known and have no been ully assessed bu should

cerainly be ully considered as par o ax reorm.

Relaed o he problem o legal ax avoidance is he problem o he ax gap. Te

ax gap is he gap beween wha is acually owed in axes and wha is paid. Te

gap is a resul o boh inenional ax evasion and uninenional underpaying.

Te gap is currenly esimaed o be a $450 billion.21 o address boh o hese

compliance problems, he capaciy o he IRS should be expanded o ensure he

enorcemen o our curren ax laws and o provide a beter undersanding o helegal evasion ha is aking place and he cos o i. In his way addiional revenue

could be raised and, i desirable, used o modiy some o he provisions o his pro-

posal such as he reducion o he bene o iemized expenses as we move rom a

deducion o a credi.

Simplifying filing

Our plan also simplies he process o ax ling by eliminaing several complica-

ing eaures o odays ax code. For one hing, by cuting back on he ax advan-

ages ha he alernaive minimum ax is mean o address, ha complex par o

he ax code is rendered unnecessary. Tereore, our plan enirely eliminaes he

alernaive minimum ax.

We also eliminae personal and dependen exempions and he sandard deduc-

ion, and replace hem wih he larger sandard credi and expanded child credi.

Tis reduces he number o seps required or ax ling and consolidaes several

dieren calculaions ino one simpler mechanism. Our plan also renders unnec-

essary he phase-ou o personal exempions and he Pease limi on iemizeddeducions, which would be resored nex year under curren law. In our plan

abou 80 percen o axpayers will claim he sandard credi.


22/34


Other taxes

Te ocus o our plan is reorming he personal income ax. Tere are, however,

several oher changes ha aec oher axes and generae revenues.

Firs, our plan includes abou $4 billion per year in higher excise axes on ciga-retes, as proposed in CAPs recenly released healh reorm plan, he Senior

Proecion Plan.22 We also raise an addiional $6 billion per year in alcohol axes,

reversing decades o erosion in revenue rom ha source. In addiion we raise $4

billion rom regulaing and imposing small ees on Inerne gambling.

Second, we believe he corporae income ax is ripe or reorm ha broadens he ax

base, lowers he sauory rae, and raise addiional revenue. Tereore, we assume a

reorm o he corporae income ax ha generaes approximaely a 4 percen increase

in overall corporae income ax revenue.23 We believe ha addressing he use o

ranser pricinghe valuaion o goods, services, and asses in inernaional rans-acionsis o paricular imporance in reorming he corporae income ax.


23/34

Te spending side o te equation | .americanprogress.o

The spending side of the equation

Our ax reorm plan would generae approximaely $1.8 rillion in addiional rev-

enue over he nex 10 years. Tas above he $1.6 rillion proposal rom Presiden

Obama bu below he overall ax increases proposed by Simpson-Bowles in his

10-year period. Revenues would, however, reach Simpson-Bowles levels oward

he end o he period. We believe ha his ax reorm should be accompanied by

spending reducions ha are roughly equal in size o he ax increases.

Forunaely, we are already well on our way o ha goal. In 2011 Presiden Obamasigned ino law several pieces o legislaion ha reduced projeced ederal spend-

ing on discreionary programshose programs ha require an annual appropria-

ion rom Congressby more han $1.5 rillion.24 Tese cus do no include he

so-called sequesraion, which is se o begin in January 2013. Raher, hese cus

come rom he agreed-on caps on boh deense and nondeense discreionary

spending in place or he remainder o he decade.

Because o hose capswhich he presiden no only signed ino law bu hen

also incorporaed ino his subsequen budge proposalsspending on nonde-

ense discreionary services and programs is se o all o is lowes levels since

his caegory was creaed in 1962. Deeper cus would undermine vial uncions

o governmen and sacrice needed invesmens. Furher cus o spending mus

come rom oher pars o he budge.

Te Cener or American Progress recenly released a plan eniled he Senior

Proecion Plan,25 which nds $385 billion in addiional savings rom ederal

healh care programs, mainly rom Medicare. Tese savings do no come rom

slashing benes or shiing he cos burden ono senior ciizens, amilies, or saes.

Raher, our approach is o reduce he overall cos o healh care by improvingeciencies, by eliminaing waseul subsidies, and by heighening he incenives

or improving he qualiy o care wihou increasing coss.


24/34


Our plan includes an array o srucural reorms o bend he cos curve over he

long erm:

Reforming the way prices are determined for health care products and some

services. Righ now, he governmen ses hese prices or he mos par. Insead,

Medicare and Medicaid should adop marke-based prices, allowing manuac-urers and suppliers o compee o oer he bes prices.

Reforming the way health care is paid for and delivered. Righ now, Medicare

and Medicaid pay a ee or each service or he mos par. Tis creaes incenives

or docors o order more and more proable ess and procedures. Insead,

hese programs should pay a xed amoun or a bundle o services or or all o a

paiens care.

Encouraging states to become accountable for controlling health care costs.

Accounable care saes ha keep overall healh care spending below a globalarge would be rewarded wih bonus paymens.

In addiion o srucural reorms, our plan includes dozens o reorms ha would

guaranee a down paymen o savings. Tese include:

Reducing drug costs.When Medicaid covered drugs or seniors, drug com-

panies provided large discouns, bu Medicare does no ge he same deal.

Medicaid rebaes should be exended o brand-name drugs purchased by low-

income Medicare beneciaries.

Bringing Medicare payments into line with actual costs. Te independen

Medicare Paymen Advisory Commissionwhich advises Congress on

Medicare policyhas idenied numerous ways ha healh care providers

should be more ecien. argeing ineciency is much beter han resoring

o a series o blun, across-he-board cus in provider paymen raes. Under our

plan, or example, hospials would are much beter wih smaller and beter

argeed cus.

Increasing premiums for high-income Medicare beneficiaries. High-incomebeneciaries pay higher premiums under curren law. Bu he share o bene-

ciaries who pay higher premiums should be expanded and he higher premium

amouns should be increased by 15 percen.


25/34

Te spending side o te equation | .americanprogress.o

In addiion o addiional savings in healh care, we propose $100 billion in sav-

ings rom oher nondiscreionary programs. Tese are seleced rom a range o

measures previously proposed by he Cener or American Progress and ound in

he presidens budge.26 And while we srongly believe ha he sequeser mus

be avoided, he Penagon should also be asked o sreamline, o reduce wase and

ineciency. I is no unreasonable o expec ha he Penagon can conribueabou $10 billion a yearless han 2 percen o is currenly projeced budge

oward deci reducion.

Finally, spending cus and ax increases alone

canno solve our budge dilemma. We mus also

help he economy recover as as as possible.

Elevaed unemploymen, depressed wages, and

increased povery are all signican conribu-

ors o our budge decis. Any plan o reduce

he deci over he nex 10 years mus beginwih a signican eor o advance job creaion

oday. Our plan includes room or $300 billion

in job-creaing invesmens such as inrasruc-

ure consrucion and repair, eacher hiring and

raining, and home and commercial energy

eciency reros. We also make room on he

ax side or $100 billion in ax cus relaed o

employmen such as he payroll ax holiday, a

reurn o he Making Work Pay ax credi, or

similar measures.27

Alogeher, and aking ino accoun iniial job-creaion spending, our plan includes

more han $1.8 rillion in programmaic spending cus. Tese cus would reduce

ederal spending rom a projeced level o more han 24 percen o GDP in 2022 o

abou 22.7 percen o GDP. (see Figure 3) When combined wih he $1.8 rillion

in added revenue, we generae anoher $500 billion in reduced spending on ineres

paymens on he deb or oal deci reducion over 10 years o $4.1 rillion.

FIGURE 3

Federal spending, as a share o GDP, 2012-2022

20%

25%

21%

22%

23%

24%

Current law

Simpson-Bo

CAP plan

Obama Bud

Policy witho

deficit redu

2012 2014 2016 2018 2020 2022

Note: Policy without decit reduction is projections o ederal spending under current policy prio

discretionary spending cuts enacted since scal year 2010.



26/34


27/34

Bottom ine | .americanprogress.o

Bottom line

Our plan consiss o $1.8 rillion in new revenue

rom a progressive ax reorm, $1.8 rillion in

programmaic spending cus, and anoher $500

billion in ineres savings or a oal o $4.1 ril-

lion in deci reducion. (see able 2)

I implemened, our plan would reduce budge

decis o less han 3 percen o gross domesicproduc by 2015 and lower hem urher, o

abou 2 percen o GDP, by 2017. Insead o

climbing higher and higher, he deb would

begin o all by 2015, dropping o 72 percen o

GDPlower han i is odayby he end o he

decade. (see Figure 4)

Tis is wha a balanced and realisic plan or de-

ici reducion looks like. I asks hose who have

gained he mos over he pas decade o give

somehing back. I asks hose who can aord i

o bear heir air share o he burden. I proecs

seniors, he middle class, and hose sriving o

ge ino he middle class. I simplies he ax

code, making i airer and easier o undersand.

I nds eciencies and cus spending ha we

canno aord. And crucially, i sabilizes he

deb and ses i on a downward pah.

FIGURE 4

Publicly held debt, as a share o GDP, 2012-2022

Current law

Simpson-Bow

CAP plan

Obama Budg

Policy withou

deficit reduct

40%

50%

60%

70%

80%

90%

100%

2012 2014 2016 2018 2020 2022

Note: Policy without decit reduction is projections o ederal spending under current policy prito discretionary spending cuts enacted since scal year 2010.


tablE 2

Elements o CAP deicit plan

Revenue changes

Tax reorm + $1.9 trillionTemporary job creation tax cuts - $100 billion

Net new revenue +$1.8 trillion

Spending changes

Disc. spending cuts already enacted - $1.5 trillion

Additional deense cuts - $100 billion

Health savings - $385 billion

Other mandatory cuts - $100 billion

Job creation + $300 billion

Programmatic spending cuts - $1.8 trillion

Interest savings - $500 billion

Net spending cuts - $2.3 trillion

Total deicit reduction $4.1 trillion


28/34


About the authors

Roger Altman is ounder and execuive chairman o Evercore Parners. He served

in he Deparmen o he reasury as assisan secreary in he Carer adminisra-

ion and as Depuy Secreary in he Clinon adminisraion rom 1993 o 1995.

In beween, he was co-head o invesmen banking a Lehman Brohers and amember o he rms Managemen Commitee and is Board, and vice chairman a

he Blacksone Group.

William Daley served as Presiden Barack Obamas Chie o Sa rom January

2011 unil January 2012. Prior o his chie o sa role, Daley was vice chairman

and chairman o he Midwes or JPMorgan Chase, rom 2004 unil 2011. He was

presiden o SBC Communicaions rom 2001 unil 2004. In 2000, he chaired

Vice Presiden Al Gores presidenial campaign. From 1997 o 2000 Daley served

as U.S. Secreary o Commerce under Presiden Bill Clinon.

John Podesta is he ounder and Chair o he Cener or American Progress and

was is Presiden rom 2003 o 2011. Prior o ounding he Cener, Podesa served

as Whie House Chie o Sa o Presiden Clinon. Mos recenly, Podesa served

as co-chair o Presiden Obamas ransiion. Podesa has also held numerous posi-

ions on Capiol Hill.

Robert E. Rubin served as Secreary o he reasury rom 1995 o 1999. He

joined he Clinon adminisraion in 1993, serving in he Whie House as assis-

an o he presiden or economic policy and as he rs direcor o he Naional

Economic Council. He joined Goldman, Sachs & Company in 1966 and served

as co-chairman rom 1990 o 1992. From 1999 o 2009 Rubin served as a mem-

ber o he Board o Direcors a Ciigroup. He currenly serves as co-chairman o

he Council on Foreign Relaions, is a member o he Harvard Corporaion, and

counselor o Cenerview Parners.

Leslie B. Samuels is a senior parner o Cleary Gotlieb Seen & Hamilon LLP.

From 1993 o 1996 he served as assisan secreary or ax policy o he U.S. reasury

Deparmen, and rom 1994 o 1996 also served as vice chairman o he Commitee

o Fiscal Aairs in he Organizaion or Economic Cooperaion and Developmen.Mr. Samuels joined Cleary Gotlieb in 1968 and became a parner in 1975.


29/34

About te autors | .americanprogress.o

Lawrence H. Summersis he Charles W. Elio Universiy Proessor a Harvard.During he Clinon adminisraion, he served in he Deparmen o he reasury

as undersecreary or inernaional aairs, depuy secreary, and secreary o he

reasury. Summers was hen presiden o Harvard Universiy rom 2001 o 2006.

From 2009 unil 2011 he served in he Whie House as direcor o he Naional

Economic Council.

Neera Tanden is he Presiden o he Cener or American Progress. anden

previously served on Presiden Obamas healh reorm eam. Prior o ha, anden

was he direcor o domesic policy or he Obama-Biden campaign. anden

served as policy direcor or Hillary Clinons presidenial campaign and associ-

ae direcor or domesic policy and senior advisor o he rs lady in he Clinon

adminisraion.

Antonio Weiss is global head o invesmen banking or Lazard, an independen

nancial and asse managemen rm. Weiss is publisher oTe Paris Review andrusee o various nonpro insiuions.

Michael Ettlingeris Vice Presiden or Economic Policy a he Cener orAmerican Progress. Prior o joining he Cener, he spen six years a he Economic

Policy Insiue direcing he Economic Analysis and Research Nework.

Previously he was ax policy direcor or Ciizens or ax Jusice and he Insiue

or axaion and Economic Policy or 11 years. He has also served on he sa o

he New York Sae Assembly.

Seth Hanlon is Direcor o Fiscal Reorm a he Cener or American Progress,

where his work ocuses on ederal ax issues. Prior o joining he Cener, Seh

praciced law as an associae wih he Washingon, D.C. rm o Caplin & Drysdale,

where he ocused on ax issues acing individuals, corporaions, and nonpro

organizaions, and previously served on Capiol Hill as an aide o Reps. Harold

Ford Jr (D-N) and Mary Meehan (D-MA).

Michael Linden is Direcor or ax and Budge Policy a he Cener or American

Progress. Michaels work ocuses on he ederal budge and he medium- and long-

erm decis. He has co-auhored numerous repors on he causes o and soluionso our scal challenges, including Pah o Balance, which rs proposed primary

balance as an inermediae goal, and A Firs Sep, which included a deailed plan

or achieving ha goal.


30/34


Acknowledgements

We would like o acknowledge he criical suppor o he Peer G. Peerson

Foundaion. Tis plan was based, in par, on work prepared or he Peerson

Foundaions Soluions Iniiaive. Te Peerson Foundaion convened organiza-

ions wih a variey o perspecives o develop plans addressing our naions scalchallenges. Te American Acion Forum, Biparisan Policy Cener, Cener or

American Progress, Economic Policy Insiue, and Te Heriage Foundaion each

received grans. All organizaions had discreion and independence o develop

heir own goals and propose comprehensive soluions. Te Peerson Foundaions

involvemen wih ha projec does no represen endorsemen o any plan.

We would also like o hank he Rockeeller Foundaion or is generous suppor.

In addiion, we would like o hank Rober McInyre, John OHare, Sarah Ayres, and

numerous sa a he Cener or American Progress or heir invaluable conribuions.


31/34

Endnotes | .americanprogress.o

Endnotes

1 Congressiona Budget Oce, Budget and EconomicUpdate, August 2012 (aternative sca scenario).

2 Ibid.

3 In The Wealth of Nations (1776), Smit rote, It is notvery unreasonabe tat te ric soud contribute tote pubic expense, not ony in proportion to teirrevenue, but someting more tan in tat proportion.

4 See: Micae Greenstone and oters, A Dozen Eco-nomic Facts About Tax Reorm (wasington: BrookingsInstitution, 2012), avaiabe at ttp://.brookings.edu/researc/papers/2012/05/03-taxes-greenstone-ooney-samues. Incomes o te 1 percent decinedsarpy in te recession but ave bounced back astertan a oter groups.

5 An anaysis o te tota tax system (edera, state, andoca) by Citizens or Tax Justice, or exampe, nds tatAmericans in te midde o te income distributionpay 25 percent o teir incomes in taxes, ie te 1percent it te igest incomes pay 29 percent. See:Citizens or Tax Justice, wo Pays Taxes in America(2012), avaiabe at ttp://ctj.org/ctjreports/2012/04/o_pays_taxes_in_america.pp.

6 Ricard Kogan, Congress has Cut DiscretionaryFunding by $1.5 Triion Over Ten Years (wasing-ton: Center on Budget and Poicy Priorities, 2012),avaiabe at ttp://.cbpp.org/cms/index.cm?a=vie&id=3840.

7 CAP cacuations based on: Moment o Trut Project,Updated Estimates o te Fisca Commission Proposa(2011), reative to current poicies. Current tax poiciesin tis case reers to te extension o te 2001, 2003,and 2009 tax cuts, but not te continuation o te so-caed tax extenders.

8 Congressiona Budget Oce, Te Distribution ohouseod Income and Federa Taxes, 2008 and 2009(2012), avaiabe at ttp://.cbo.gov/pubica-tion/43373.

9 Ibid.

10 See, or exampe: Emmanue Saez, Joe B. Semrod,and Set h. Giertz, Te Easticity o Taxation Incomeit Respect to Margina Tax Rates: A Critica Revie.working Paper 15012 (Nationa Bureau o EconomicResearc, 2010), avaiabe at ttp://esa.berkeey.edu/~saez/saez-semrod-giertzJEl10round2.pd;Greenstone and oters, A Dozen Economic Facts About

Tax Reorm; Tomas l. hungerord, Taxes and teEconomy: An Economic Anaysis o te Top Tax RatesSince 1945 (wasington: Congressiona Researc Ser-vice, 2012), avaiabe at ttp://grapics8.nytimes.com/nes/business/0915taxesandeconomy.pd; CristinaD. Romer and David h. Romer, Te Incentive Efectso Margina Tax Rates: Evidence rom te Interar Era.working Paper 17860 (Nationa Bureau o EconomicResearc, 2012); Raj Cetty, Bounds on Easticities witOptimization Frictions: A Syntesis o M icro and Macro

Evidence on labor Suppy, Econometrica 80 (3) (2012):9691018; Cye-Cing huang, Recent Studies FindRaising Taxes on hig-Income houseods woud Notharm te Economy (wasington: Center on Budgetand Poicy Priorities, 2012), avaiabe at ttp://.cbpp.org/cms/index.cm?a=vie&id=3756;Micaelinden, Ric Peopes Taxes have litte to Do it JobCreation, Center or American Progress, June 27, 2011,avaiabe at ttp://.americanprogress.org/issues/tax-reorm/nes/2011/06/27/9856/ric-peopes-taxes-ave-itte-to-do-it-job-creation/.

11 See: Micae Ettinger and Jon Irons, Take a wak onte Suppy Side (wasington: Center or AmericanProgress and Economic Poicy Institute, 2008), avaiabeat ttp://.americanprogress.org/p-content/upoads/issues/2008/09/pd/suppy_side.pd; Centeror American Progress anaysis o Bureau o laborStatistics, tota nonarm empoyment (Jan. 1993-Jan.2001).

12 See, or exampe: Greenstone and oters, A DozenEconomic Facts About Tax Reorm.

13 Ibid.; Robert Greenstein, Joe Friedman, and Jimhorney, Te Tension Beteen Reducing Tax Rates andReducing Decits (wasington: Center on Budget andPoicy Priorities, 2012); Jane G. Gravee and Tomas l.hungerord, Te Caenge o Individua Income TaxReorm: An Economic Anaysis o Tax Base Broaden-ing (wasington: Congressiona Researc Service,2012), avaiabe at ttp://.asingtonpost.com/p-srv/business/documents/crstaxreorm.pd; NationaCommission on Fisca Responsibiity and Reorm, TeMoment o Trut (2010), gure 8; Bipartisan PoicyCenter, Bipartisan Poicy Center (BPC) Tax Reorm,Quick Summary, avaiabe at ttp://bipartisanpoicy.org/sites/deaut/es/Tax%20Reorm%20Quick%20Summary_.pd.

14 Top Federa Income Tax Rates Since 1913, avaiabe atttp://.ctj.org/pd/regcg.pd.

15 See: leonard E. Burman, Tax Reorm and te Tax Treat-ment o Capita Gains, Testimony beore te houseCommittee on ways and Means and Senate Committeeon Finance, September 20, 2012, avaiabe at ttp://.nance.senate.gov/imo/media/doc/092012%20Burman%20Testimony.pd; Cye-Cing huang andCuck Marr, Raising Todays lo Capita Gains RatesCoud Promote Economic Eciency and Fairness,wie heping Reduce Decits (wasington: Center onBudget and Poicy Priorities, 2012), avaiabe at ttp://.cbpp.org/cms/index.cm?a=vie&id=3837.

Tomas l. hungerord, An Anaysis o te Bufett Rue(wasington: Congressiona Researc Service, 2012).

16 Te 28 percent is incusive o te 3.8 percent tax on netinvestment income.

17 Te arge standard credit aso eps repace personaexemptions under our pan.

18 Greenstone and oters, A Dozen Economic FactsAbout Tax Reorm; Robert Greenstein, Joe Friedman,and Jim horney, Te Tension Beteen Reducing TaxRates and Reducing Decits (wasington: Center onBudget and Poicy Priorities, 2012).

19 Jane G. Gravee and Tomas l. hungerord, TeCaenge o Individua Income Tax Reorm: An Eco-nomic Anaysis o Tax Base Broadening (wasington:Congressiona Researc Service, 2012), avaiabe atttp://.asingtonpost.com/p-srv/business/documents/crstaxreorm.pd.

20 Nationa Commission on Fisca Responsibiity andReorm, Te Moment o Trut (2010), gure 8;Bipartisan Poicy Center, Bipartisan Poicy Center (BPC)

Tax Reorm, Quick Summary, avaiabe at ttp://bipar-tisanpoicy.org/sites/deaut/es/Tax%20Reorm%20Quick%20Summary_.pd.
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21 Te IRS estimates tat in 2006, te gross tax gaptetota amount o tax tat as oed but not paid ontimeas $450 biion; enorcement eforts and atepayments reduced te net tax gap to $385 biion.

Tose estimates ikey underestimate te actua tax gapdue to te dicuty o estimating unreported ofsoreincome, among oter reasons. See: Interna RevenueService, IRS Reeases Ne Tax Gap Estimates, January6, 2012, avaiabe at ttp://.irs.gov/uac/IRS-Reeases-Ne-Tax-Gap-Estimates;-Compiance-Rates-Remain-Statisticay-Uncanged-From-Previous-Study;

Treasury Inspector Genera or Tax Administration, A

Combination o legisative Actions and Increased IRSCapabiity Are Required to Reduce te Muti-BiionDoar U.S. Internationa Tax Gap, January 27, 2009,avaiabe at ttp://.treasury.gov/tigta/iereports/2009reports/2009IER001r.tm.

22 Center or American Progress heat Poicy Team,Te Senior Protection Pan (wasington: Centeror American Progress, 2012), avaiabe at ttp://.americanprogress.org/issues/eatcare/re-port/2012/11/14/44590/te-senior-protection-pan/.

23 wie our ocus it tis tax reorm proposa as beente individua income tax, e do tink te corporateincome tax is ripe or reorm as e. As noted, tisreorm soud be revenue positive, toug e are notproposing specic mecanisms or doing so. Many rea-sonabe ideas ave aready been proposed incudingsevera proposas in te presidents budget request, as

e as is outine or more compreensive reorm. See:Te wite house and te Department o te Treasury,Te Presidents Frameork or Business Tax Reorm(2012). Ideay, suc a reorm oud invove bot raisingrevenue and oering te top corporate rate.

24 Kogan, Congress has Cut Discretionary Funding by$1.5 Triion Over Ten Years.

25 Center or American Progress heat Poicy Team, TeSenior Protection Pan.

26 Micae Ettinger, Micae linden, and Set hanon,Budgeting or Grot and Prosperity (wasington:Center or American Progress, 2011), avaiabe atttp://.americanprogress.org/issues/budget/report/2011/05/25/9572/budgeting-or-grot-and-prosperity/; Micae Ettinger, Micae linden, and

Reece Rusing, Te First Step (wasington: Centeror American Progress, 2010), avaiabe at ttp://.americanprogress.org/issues/economy/re-port/2010/12/06/8716/te-rst-step/.

27 Micae Ettinger and oters, Spurring Job Creation inte Private Sector (wasington: Center or AmericanProgress, 2011), avaiabe at ttp://.americanpro-gressaction.org/issues/abor/report/2011/08/26/10167/spurring-job-creation-in-te-private-sector/; David M.Abromoitz and oters, Meeting te Jobs Caenge(wasington: Center or American Progress, 2009),avaiabe at ttp://.americanprogress.org/issues/abor/report/2009/12/02/7063/meeting-te-jobs-caenge/.
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