Many tax reform advocates want to keep the current income-based system, but make it less complex, reduce tax rates and collapse tax brackets, and curb many big-ticket tax breaks.
For example, the National Commission on Fiscal Responsibility and Reform set forth the following illustrative plan:
•Collapse the six tax brackets, which currently range from 10% to 35%, into three…12%, 22% and 28%
• Permanently repeal the alternative minimum tax
• End preferential treatment of capital gains and dividends; tax such income at the same rates as salaries
• Retain the earned income and child credits
• Eliminate all itemized deductions; all taxpayers would claim the standard deduction
• Allow a 12% tax credit for charitable donations that exceed 2% of adjusted gross income and a 12% credit for home mortgage interest (on mortgages up to $500,000)
• Eliminate or significantly reduce most other tax expenditures
And for corporate taxes, the Commission provides an illustration with a single 28% tax rate, while eliminating most corporate tax expenditures, including the 9% domestic production deduction.
Other like-minded reform ideas that have received significant attention include the proposals set forth in Representative Ryan’s Fiscal Year 2012 Budget Resolution (25% top individual tax rate and 25% flat corporate rate) and the “Bipartisan Tax Fairness and Simplification Act of 2011” proposed by Senators Ron Wyden and Daniel Coats (three individual tax rates…15%, 25% and 35%...and a single corporate rate of 24%).
Chances of passage:
Good, but probably not until 2013. Similar reforms that culminated in the Tax Reform Act of 1986 took two years to come to fruition.
Changing the Mix by Reducing Tax Breaks and Lowering the Rate