M-100512 – Discussion of Tax Reform That Cuts the Top Income Tax Rate to 28% – 10/5/2012

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Discussion of Tax Reform That Cuts the Top Income Tax Rate to 28%

Description

Author: Jane G. Gravelle, Senior Specialist in Economic Policy

Pages: 5

The Fiscal Commission plan, as is the case of a number of other proposals, makes a few specific proposals and generally refers to eliminating most tax expenditures.2 The Fiscal Commission proposal sets forth a plan that allows rates to be cut roughly by 20%, compared to a baseline that assumes the 2001 and 2003 tax cuts are extended. Thus, the top rate would be 28% (which would apply to the current 33% and 35% brackets). If some additional tax expenditures were to be preserved, the rates would need to rise, to maintain revenue levels. This plan aims to offset the rate reductions and also raise revenue. The commission suggests that no rate be higher than 29%, so that taxes might have to rise more in the middle classes if it proves not to be feasible to eliminate some tax expenditures. Thus one question is whether tax expenditures are adequate to offset the rate cuts and, possibly to raise revenue.