Senators Ron Wyden (D-OR) and Judd Gregg (R-NH) have introduced a tax reform plan, dubbed the Bipartisan TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Fairness and Simplification Act of 2010. It flies in the face of what President Obama wants to do with the tax code in his new health bill, but it shows that serious Republicans and Democrats can compromise and put their names on important legislation together. Here’s the draft bill, and the Congressional Research Service has done some preliminary calculations on it.
On the corporate side, Gregg and Wyden propose a flat 24% rate and a repeal of deferral. We’ve written before why progressivity in corporate tax rates makes no progressive sense, and we have a new report out explaining deferral. The senators post a chart to show that even after reducing the top U.S. corporate rate from 35% to 24%, U.S. corporate tax rates will still be higher than in most OECD countries because of state-level corporate taxes that most countries don’t have.
On the individual side, the Senators propose tripling the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. and replacing our current 6 rates/brackets with three: 15% on the first $75,000 of taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. ; 25% on taxable income between $75,000 and $140,000; and 35% above $140,000. Brackets for singles are exactly half, completely eliminating marriage penalties. They maintain all of the biggest, popular tax breaks: health care exclusion, mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act (TCJA) reduced the amount of principal and limited the types of loans that qualify for the deduction. , and deduction for state-local taxes paid, but they eliminate many smaller ones.
Capital gains and dividends would be taxed more heavily by Gregg and Wyden than under the Obama Budget. Wyden and Gregg would exclude 35% of capital gains and dividend from taxation but otherwise apply wage tax rates, hearkening back to the old days of the 50% exclusion. In effect, the three tax rates on capital gains (held at least 6 mos.) and qualified dividends would be 22.75% on people in the 35% bracket, 16.25% rate on people in the 25% bracket and 9.75% rate on people in the 15% bracket.
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