2.1: Tax Reform
ENACT FUNDAMENTAL TAX REFORM BY 2012 TO LOWER RATES, REDUCE DEFICITS, AND SIMPLIFY THE CODE. Other Information:
Eliminate all income tax expenditures, dedicate a portion of the additional revenue to deficit reduction, and use the remaining
revenue to lower rates and add back necessary expenditures and credits. Fundamental tax reform will require significant revisions
to the current tax code and will need to take into account the transition to new and modified provisions. These tasks are
not insignificant and the Commission recognizes that for Congress and the President to consider and implement these sweeping
changes, a comprehensive process will be needed. To this end, the Commission recommends requiring the House Committee on Ways
and Means and the Senate Committee on Finance, in cooperation with the Department of the Treasury, to report out comprehensive
tax reform legislation through a fast track process by 2012. The Commission proposes tax reform that relies on “zero-base
budgeting” by eliminating all income tax expenditures (but maintaining the current payroll tax base, which should be modified
only in the context of Social Security reform), and then using the revenue to lower rates and reduce deficits. The revenue
from eliminating tax expenditures should be dedicated to three clear purposes: 1) substantially lowering marginal tax rates;
2) reducing the reduction; and 3) supporting a small number of simpler, more targeted provisions that promote work, home ownership,
health care, charity, and savings. As a matter of principle, tax reform must increase or maintain progressivity. A “zero plan”
could reduce income tax rates to as low as 8%, 14%, and 23%. Even after adding back a number of larger tax expenditures, rates
would still remain significantly lower than under current law. In designing tax reform, Congress must abide by the following
parameters in order to receive a fast-tracked status:
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