About the Bipartisan Policy Center Debt Reduction Task Force
By Children’s Home Society of Florida Foundation
Senator Max Baucus (D-MT) is continuing his series of tax reform hearings as Chairman of the Senate Finance Committee. On June 19, former Sen. Pete Domenici (R-NM) and Alice Rivlin, former Director of the Congressional Budget Office and the Office of Management and Budget, described their solution. Domenici and Rivlin are the Co-Chairs of the Bipartisan Policy Center Debt Reduction Task Force.
The Domenici-Rivlin Plan
Domenici emphasized that there are two essential parts of the potential 2013 financial reform. He stated, “Healthcare reform and tax reform that raises additional revenue are essential pieces of any serious plan.” Then, Rivlin continued to describe the basic principles for tax reform. She commented, “Assume that all income from whatever source is taxable, which would enable you to raise more revenue from much lower rates, and then go back to decide which modifications are absolutely essential, even though they would raise the rates.”
Two Major Changes
The Domenici-Rivlin plan starts with a modification of Medicare. They propose two major changes.
1. Federal Medicare Exchanges. Private companies could offer fee-for-service and other comprehensive Medicare plans. All Medicare beneficiaries could choose their plan.
2. Competitive Pricing. The private plans and traditional fee-for-service Medicare plans would receive federal support at the level of the second-lowest-cost plan. This pricing method encourages plan providers to economize and reduce overall costs.
Tax Reform
Domenici and Rivlin also offered very specific proposals for comprehensive tax reform.
1. Tax Brackets. Their personal tax system has brackets of 28% and 15%. The corporate rate is 28%.
2. Capital Gains. All gains from capital asset sales are taxed at ordinary income rates. Most taxpayers would pay 28% capital gains rates.
3. Child Credit. The credit per child would be $1,600.
4. Itemized Deductions. None; except miscellaneous deductions that exceed 5% of adjusted gross income.
5. Mortgage Deduction. A 15% credit on interest paid with a limit of $25,000 per year.
6. Charitable Gifts. A 15% credit on deductible gifts.
7. State and Local Taxes. Not deductible.
8. IRAs and Retirement Plans. A 15% tax credit or deductions up to $20,000 per year.
Assessment
Ms. Rivlin concluded her discussion by observing that the plan under discussion was similar to the Bowles-Simpson plan approved by the National Commission on Fiscal Responsibility and Reform. She observed, “The basic structure is the same. You can’t get there any other way.”
Editor’s Note:
Sen. Baucus and House Ways and Means Chairman Dave Camp (R-MI) are steadily moving toward major tax reform in 2013. The two bipartisan groups advocating reform have agreed on general principles. However, there still remains a major political discussion at the end of this year before broad-based reform can commence. Your editor and this organization take no specific position on these recommendations. This information is offered because it will have major impact on all Americans.
Conclusion
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