Washington News

In 2010, the National Commission on Fiscal Responsibility and Reform considered possible options for reforming the income tax system. The bipartisan commission was co-chaired by former Senator Alan Simpson and former White House Chief of Staff Erskine Bowles.

The Bowles-Simpson tax solution involved a substantial reduction in the rates by limiting itemized deductions or converting them to tax credits.

In response to the Simpson-Bowles proposal and those from members of Congress and presidential candidates, the Senate Finance Committee leadership met with the Joint Committee on Taxation (JCT). Committee Chair Max Baucus (D-MT) and ranking member Orrin Hatch (R-UT) requested a study by JCT of various tax reform options.

The JCT experiment discussed options if various tax expenditures were repealed. Based on the JCT analysis, there was only a small reduction in rates possible. However, other commentators noted that the JCT study did not consider all of the base-broadening strategies.

In response to the JCT study, Simpson and Bowles issued a joint statement and noted, "Nothing in the JCT analysis changes our belief that it is possible for tax reform to reduce rates and produce additional revenues if policy makers are willing to make the tough choices to eliminate or scale back tax expenditures."

The Simpson-Bowles proposal showed a potential to reduce rates to 8%, 14% and 23% if there is a drastic reduction in other tax expenditures. The nonpartisan Committee for a Responsible Federal Budget (CRFB) also responded to the JCT study.

The CRFB analysis indicated that the Simpson-Bowles commission strategy could work if there is partial or total elimination of tax expenditures. Another CRFB analysis also indicated that there was a 2005 Treasury study by the President's Advisory Panel on Tax Reform that claimed a combination of base-broadening and rate reduction is possible.

CRFB staff noted, "Although these two analyses differ in some respect, both show that the full elimination of all tax expenditures would allow the top tax rate to fall to 23% while still putting aside more than $1 trillion for deficit reduction."

Editor's Note: Your editor and this organization take no specific position on these tax reform strategies. The proposed major rate reduction plans all require significant limits on itemized deductions. Most strategies also tax capital gains at 28%. These changes will be difficult to pass during the major tax reform expected in 2013.