Tax Reform and Deficit
Reduction
Professor Jon Forman
University of Oklahoma
Slides for a panel of the
Comm. on Tax Policy and Simplification
ABA Section of Taxation
Washington, DC
May 6, 2011
Overview
 The Budget Outlook
 Short-term
 Long-term
 Taxes
 The Current Tax System
 Recent Tax Reform Proposals
2
Short-Term:
Projected Budget Totals
Budget Totals, $billions
Receipts
Outlays
Deficit
Budget Totals, % GDP
Receipts
Outlays
Deficit
Public Debt, % GDP
2011
$2,228
$3,708
$1,480
2012-2021
$39,084
$46,055
$ 6,971
14.8%
24.7%
9.8%
69.4%
19.9%
23.5%
3.6%
75.3%
Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021
(January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.
3
Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021
(January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.
4
5
Congressional Budget Office, Four Observations about the Federal Budget (March 7, 2011), at 6
http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf.
6
Congressional Budget Office, Four Observations about the Federal Budget (March 7, 2011), at 7
http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf.
7
Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021
(January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.
8
9
10
11
Congressional Budget Office, Four Observations about the Federal Budget (March 7, 2011), at 8
http://www.cbo.gov/ftpdocs/120xx/doc12087/CBO_Presentation_to_NABE_3-7-11.pdf.
12
U.S. Department of the Treasury, Financial Management Service, A Citizen’s Guide to the
Financial Report of the United States Government (2009).
13
Congressional Budget Office, The Long-Term Budget Outlook (Revised August 2010), at 5,
http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf.
14
Factors Explaining Future Federal
Spending on Medicare, Medicaid, and
Social Security (percentage of GDP)
Congressional Budget Office, The Long-Term Budget Outlook (June 2009), at 12 (Box 1-2).
Taxes
 Overview of the federal tax system
 Recent tax reform proposals
16
Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System
(JCX-1-11), January 18, 2011, at 71, www.jct.gov.
17
Proposed Budget Receipts
Receipts, $billions
2011
2014
Individual income taxes
998
1,671
Corporation income taxes
279
398
Payroll taxes
819
1,092
Excise taxes
73
86
Estate and gift taxes
11
14
Custom duties and other receipts
47
75
2,228
3,442
$15,034
$17,258
14.8%
19.9%
Total receipts
GDP
Receipts, % GDP
Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021
(January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.
18
Center on Budget and Policy
Priorities, Top Ten Tax Charts
(April 14, 2011),
http://www.offthechartsblog.org
/top-ten-tax-charts/.
19
Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System
Joint Committee
on18,
Taxation,
Present Law and Historical Overview of the Federal Tax System
(JCX-1-11),
January
2011, www.jct.gov.
(JCX-1-11), January 18, 2011, at 70, www.jct.gov.
20
U.S. Payroll Tax Rates: Selected Years
Percent paid jointly by employee and employer
20
18
16
14
12
Medicare
Social Security
10
8
6
4
2
0
1940
1960
1980
2010
Year
21
Tax-to-GDP ratio, 2008
OECD Tax Database, http://www.oecd.org.
22
Edward D. Kleinbard, Muddling Through the Budget Crisis (January 6, 2011); OECD Tax
Database, http://www.oecd.org.
23
Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System
(JCX-1-11), January 18, 2011, at 72, www.jct.gov.
24
Congressional Budget Office, Trends in Federal Tax Revenues and Rates (December 2, 2010), at
10, http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.
25
Center on Budget and Policy
Priorities, Top Ten Tax Charts
(April 14, 2011),
http://www.offthechartsblog.org
/top-ten-tax-charts/.
26
Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System
(JCX-1-11), January 18, 2011, at 66, www.jct.gov.
27
Center on Budget and
Policy Priorities, Top Ten
Tax Charts (April 14,
2011),
http://www.offthecharts
blog.org/top-ten-taxcharts/.
28
Top 10 Income Tax Expenditures,
2012 (Billions)
Health insurance exclusion
$184
Mortgage interest deduction
99
401(k) plans
68
Step-up of basis at death
61
Exclusion of net imputed rental income
51
Deductible nonbusiness state and local taxes other
than on houses
49
Employer plans
45
Charitable contrib. (other than health & education)
43
Capital gains (except agriculture, timber, iron, coal)
38
Exclusion of interest on tax-exempt bonds
37
2012 Federal Budget, Analytical Perspectives, Chapter 17, Tax Expenditures, Table 17-3,
http://www.whitehouse.gov/omb/budget/Analytical_Perspectives.
29
Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021
(January 2011), http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf.
30
Office of Management and the Budget, A New Era of Responsibility: Renewing America’s
Promise (2009).
31
Productivity and Real Income
20 Facts About U.S. Inequality that Everyone Should Know,
http://stanford.edu/group/scspi/cgi-bin/facts.php.
32
Rising Poverty
U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2009,
(Current Population Report No. P60-238, September 2010), http://www.census.gov.
33
Congressional Budget Office, Trends in Federal Tax Revenues and Rates (December 2, 2010), at
24, http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.
34
Rising Inequality
Figure 3. Ratio of Average Household Income of the Top 5 and 20 Percent of Households to the
Average Household Income of the Bottom 20 Percent of Households, 1970-2009
30
26.1
24.6
Top 20%/bottom 20%
Top 5%/bottom 20%
25
22.7
19.1
20
17.0
16.2
Ratio
25.5
14.5
15
10.6
10
9.8
14.7
10.2
11.3
11.9
13.2
13.8
14.8
14.8
5
0
1970
1975
1980
1985
1990
1995
2000
2005
2009
Year
Source: U.S. Census Bureau, table IE-3, http://www.census.gov/hhes/www/income/data/historical/inequality/index.html.
35
Congressional Budget Office, Trends in Federal Tax Revenues and Rates (December 2, 2010), at
15, http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.
36
37
Shares of Total Business Returns
and Net Income, 1980-2007
1980
1990
2000
2007
Returns
4%
8%
11%
12%
Net Income
1%
8%
14%
14%
11%
8%
8%
10%
3%
3%
18%
23%
Returns
69%
74%
72%
72%
Net Income
17%
26%
15%
10%
17%
11%
9%
6%
80%
62%
53%
53%
S Corporations
Partnerships
Returns
Net Income
Sole Proprietorships
C Corporations
Returns
Net Income
Internal Revenue Service, Statistics of Income, www.irs.gov/taxstats.
38
Expired Tax Provisions 2010




First-time homebuyer credit
Making work pay credit
Build America Bonds
Estate and gift tax regime for 2010
Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11),
January 21, 2011, www.jct.gov.
39
Expiring Tax Provisions 2011
 Tax credit for research and
experimentation expenses
 Increased AMT exemption amount
 Increase in expensing to
$500,000/$2,000,000
 Above-the-line deduction for qualified
tuition and related expenses
 Temporary 2% payroll tax cut
Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11),
January 21, 2011, www.jct.gov.
40
Expiring Tax Provisions 2012
 Most 2001 and 2003 tax cuts




35% maximum rate
10% minimum rate
$1,000 child tax credit
15% capital gain and dividend rates
 Expanded earned income tax credit
 American opportunity tax credit
 Reduced estate and gift taxes
Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2010-2020 (JCX-2-11),
January 21, 2011, www.jct.gov.
41
Center on Budget and Policy
Priorities, Top Ten Tax Charts
(April 14, 2011),
http://www.offthechartsblog.org
/top-ten-tax-charts/.
42
Recent Tax Reform Proposals
 President’s Economic Recovery Advisory
Board, The Report on Tax Reform
Options: Simplification, Compliance,
and Corporate Taxation (August 2010).
 National Commission on Fiscal
Responsibility and Reform, The Moment
of Truth (December 2010).
 Bipartisan Policy Center, Restoring
America’s Future (November 2010).
 Co-Chairs: Pete Domenici & Alice Rivlin
43
Recent Tax Reform Proposals
 Bipartisan Tax Fairness and
Simplification Act of 2011 (2011).
 Senators Ron Wyden and Dan Coats
 Rep. Paul Ryan, The Roadmap Plan
(2010).
 National Taxpayer Advocate, 2010
Annual Report to Congress (December
31, 2010).
 President Obama’s FY2012 Budget
44
Recent Tax Reform Proposals
 President Obama, Framework for Shared
Prosperity and Shared Fiscal
Responsibility (April 13, 2011).
 See also:
 Choosing The Nation’s Fiscal Future
(National Research Council & National
Academy of Public Administration 2010)
 The Peterson-Pew Commission on Budget
Reform, Red Ink Rising: A Call to Action to
Stem the Mounting Federal Debt (2009).
45
Principles of Sound Tax Policy






Simplicity
Transparency
Neutrality
Stability
No Retroactivity
Broad Bases and Low Rates
Tax Foundation, The Principles of Sound Tax Policy ,
http://www.taxfoundation.org/publications/show/25982.html.
46
More Principles of Sound
Tax Policy
 Distribution matters
 A just distribution of economic resources
 Intergenerational justice/ Deficits
 Behavioral consequences matter




Encourage work and savings
Marriage penalties and bonuses
Keep effective rates as low as possible
Growth and a stronger dollar
47
Tax Base




Income
Consumption
Earnings
Wealth
48
PERAB: Simplification
Options
 Simplification for Families
 Consolidate Family Credits and Simplify
Eligibility Rules
 Simplify and Consolidate Tax Incentives
for Education
PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
49
PERAB: Simplification
Options
 Simplify Savings and Retirement
Incentives
 Consolidate Retirement Accounts
 Integrate IRA and 401(k)-type
Contribution Limits and Disallow
Nondeductible Contributions
 Consolidate Non-Retirement Savings
 Reduce Retirement Account Leakage
 Simplify Taxation of Social Security
PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
50
PERAB: Simplification
Options
 Simplify Taxation of Capital Gains
 Harmonize Rules and Tax Rates for
Long-Term Capital Gains
 Simplify Capital Gains Tax Rate Structure
 Limit or Repeal Section 1031 Like-Kind
Exchanges
 Capital Gains on Principal Residences
PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
51
PERAB: Simplification
Options
 Simplify Tax Filing
 The Simple Return
 Data Retrieval
 Raise the Standard Deduction and
Reduce the Benefit of Itemized
Deductions
 Simplification for Small Business
 The Alternative Minimum Tax
PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
52
PERAB: Compliance Options
 Dedicate More Resources to
Enforcement and Enhance
Enforcement Tools
 Increase Information Reporting and
Source Withholding
 Clarify the Definition of a Contractor
PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
53
PERAB: Corporate Tax
Reform
 Reduce Marginal Corporate Rates
 Broaden the Corporate Tax Base
 Eliminate or Reduce Tax Expenditures
 Eliminate the Domestic Production
Deduction
 Eliminate or Reduce Accelerated
Depreciation
 Eliminate Other Tax Expenditures
PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
54
PERAB: International
Corporate Tax Issues
 Option 1: Move to a Territorial
System
 Option 2: Move to a Worldwide
System with a Lower Corporate Tax
Rate
 Option 3: Limit or End Deferral with
the Current Corporate Tax Rate
 Option 4: Retain the Current System
but Lower the Corporate Tax Rate
PERAB, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation,
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf.
55
President’s Fiscal Commission
Co-chairs: Alan Simpson & Erskine Bowles
Designed to raise 21% of GDP
Individual tax rates of 12, 22, and 28%
Eliminate the AMT
Eliminate the phase-out of personal
exemptions & limits on itemized deductions
 Eliminate itemized deductions but retain
standard deduction & personal exemptions
 Tax capital gains & dividends as ordinary
income





The National Commission on Fiscal Responsibility and Reform, The Moment of Truth (December
2010), http://www.fiscalcommission.gov; Tax Policy Center, http://www.taxpolicycenter.org.
56
President’s Fiscal Commission
 Eliminate tax expenditures except:
 child credit and earned income tax credit
 mortgage interest deduction—replace
with 12% credit; $500,000 mortgage cap
 cap and phase out the exclusion for
employer-sponsored health care
 charitable giving deduction—replace with
12% credit for contributions over 2%
AGI
The National Commission on Fiscal Responsibility and Reform, The Moment of Truth (December
2010), http://www.fiscalcommission.gov.
57
President’s Fiscal Commission
 Eliminate tax expenditures except:
 exclusion of interest on state and
municipal bonds—tax interest only on
newly-issued bonds
 retirement savings—maintain basic
preferences, but consolidate retirement
accounts and cap annual tax-preferred
contributions at lower of $20,000 or 20
percent of income; expand savers’ credit
 defined benefit pensions
The National Commission on Fiscal Responsibility and Reform, The Moment of Truth (December
2010), http://www.fiscalcommission.gov.
58
President’s Fiscal Commission
 Eliminate corporate tax expenditures
& reduce corporate tax rate to 28%
 Territorial tax system for active
foreign-source income
 Increase Social Security taxable wage
base to 90% of wages, by 2050
 Increase the gasoline excise tax on
gasoline by 15¢ per gallon
The National Commission on Fiscal Responsibility and Reform, The Moment of Truth (December
2010), http://www.fiscalcommission.gov.
59
Bipartisan Policy Center
 Co-Chairs: Pete Domenici & Alice
Rivlin
 one-year payroll tax holiday in 2011
to help stimulate economic recovery
 individual tax rates: 15% on the 1st
$50,000 of taxable income ($100,000
for married couples, 27% on excess
 eliminate the AMT
Bipartisan Policy Center, Restoring America’s Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
60
Bipartisan Policy Center
 Eliminate tax expenditures:
 exclusion from tax of the inside buildup
of life insurance and deferred annuities
 credits and deductions for higher
education expenses
 credit for child & dependent care
 exclusion from income of benefits under
Section 125 cafeteria plans
 foreign earned income exclusion
Bipartisan Policy Center, Restoring America’s Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
61
Bipartisan Policy Center
 Exempt the first $1,000 of net longterm gains from taxation (indexed for
inflation)
 tax any additional long-term gains and
all qualified dividends as ordinary income
 include in income unrealized capital
gains at death
 Cap and phase out the exclusion for
employer-sponsored health care
Bipartisan Policy Center, Restoring America’s Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
62
Bipartisan Policy Center
 Eliminate deduction for state and
local taxes
 Replace charitable contributions and
mortgage interest deductions with
15% refundable credits
 Retain medical deduction
Bipartisan Policy Center, Restoring America’s Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
63
Bipartisan Policy Center
 Replace the standard deduction,
personal exemptions, head of
household filing status, the child tax
credit, and the earned income tax
credit with two refundable credits:
 $1,600 for each dependent child
 an earnings credit equal to 21.3 percent
of the first $20,300 of earnings
Bipartisan Policy Center, Restoring America’s Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
64
Bipartisan Policy Center
 Tax all Social Security benefits,
eliminate the elderly credit & provide
2 new credits:
 7.5% of Social Security benefits
 15% of the current standard deduction
for individuals age 65 or older
 Increase Social Security taxable wage
base to 90% of wages
Bipartisan Policy Center, Restoring America’s Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
65
Bipartisan Policy Center
 Impose a 6.5% broad-based
consumption tax
 Impose an excise tax 1¢/ounce on
sugar-sweetened beverages
 Raise the excise tax on alcoholic
beverages to 25¢/ounce
 Estate tax: $3.5 million exemption
and 45% maximum tax rate
Bipartisan Policy Center, Restoring America’s Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
66
Bipartisan Policy Center
 Corporate taxes
 reduce the corporate rate to 27%
 eliminate many tax expenditures:
 domestic production deduction
 research and experimentation credit
 accelerated depreciation for rental housing
 retain deferral of income for controlled
foreign corporations
Bipartisan Policy Center, Restoring America’s Future (November 2010),
http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
67
Wyden-Coats Tax Act
 Like the Tax Reform Act of 1986
 Individuals
 top tax rate of 35%
 standard deduction of $15,000 ($30,000
for couples)
 repeal AMT
 35% exclusion for capital gains and
qualified dividends
 eliminate lots of tax breaks
Senator Ron Wyden, The Bipartisan Tax Fairness and Simplification Act of 2011 (2011),
http://wyden.senate.gov/issues/legislation/details/?id=fb5b603a-ed94-48a8-8ff1-c220c1052b3f.
68
Wyden-Coats Tax Act
 Corporate & business
 replaces the graduated corporate rate
structure with a flat rate of 24%
 eliminates many business tax breaks
 allow unlimited expensing of equipment
and inventories for small businesses
Senator Ron Wyden, The Bipartisan Tax Fairness and Simplification Act of 2011 (2011),
http://wyden.senate.gov/issues/legislation/details/?id=fb5b603a-ed94-48a8-8ff1-c220c1052b3f.
69
Rep. Ryan’s Roadmap
 Designed to raise 19% of GDP
 Pay income taxes through existing
law, or
 Through a highly simplified code with
virtually no tax breaks
 10% on the first $50,000 ($100,000 for
couples), 25% on the rest
 $39,000 standard deduction & personal
exemptions for a family of 4
Paul Ryan, The Roadmap Plan (2010), http://www.roadmap.republicans.budget.house.gov.
70
Rep. Ryan’s Roadmap
 eliminate the AMT
 eliminate taxes on interest, capital gains,
and dividends
 Eliminate the estate tax
 Replace the corporate income tax
with a border-adjustable business
consumption tax of 8.5%
 See also House Committee on
Budget, The Path to Prosperity (2011)
Paul Ryan, The Roadmap Plan (2010), http://www.roadmap.republicans.budget.house.gov.
71
National Taxpayer Advocate
 Repeal the AMT
 Consolidate the family tax provisions
 Improve other provisions relating to
taxation of the family unit
 Consolidate education savings
incentives
 Consolidate retirement savings
incentives
National Taxpayer Advocate, 2010 Annual Report to Congress (December 31, 2010),
http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report.
72
National Taxpayer Advocate
 Simplify worker classification
determinations
 Eliminate (or reduce incentives for
lawmakers to enact tax sunsets
 Eliminate (or simplify) phase outs
 Streamline the penalty regime
National Taxpayer Advocate, 2010 Annual Report to Congress (December 31, 2010),
http://www.taxpayeradvocate.irs.gov/Media-Resources/Annual-Report-To-Congress-Full-Report.
73
President Obama: Reform
Corporate & Individual Tax
 “I’m asking Democrats and Republicans to
simplify the system. Get rid of the loopholes.
Level the playing field. And use the savings
to lower the corporate tax rate for the first
time in 25 years – without adding to our
deficit. It can be done.”
 “In fact, the best thing we could do for all
Americans is to simplify the individual tax
code. This will be a tough job, but members
of both parties have expressed interest in
doing this, and I am prepared to join them.”
Text of President Barack Obama’s State of the Union Address ,
http://www.politico.com/news/stories/0111/48181.html.
74
President Obama’s 2012
Budget
Extend the Earned Income Credit
Expand the Dependent Care Credit
Extend American Opportunity Credit
Tax Dividends and Net Long-Term
Capital Gains at a 20-Percent Rate for
Upper-Income Taxpayers
 Reduce the Value of Certain Tax
Expenditures for Upper-Income




U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2012
Revenue Proposals (February 2011), http://www.treasury.gov/.
75
President Obama’s 2012
Budget
 Enhance and Make Permanent the
Research and Experimentation (R&E)
Tax Credit
 Reform & Extend Build America Bonds
 Reform Treatment of Financial
Institutions and Products
 Reinstate Superfund Taxes
 Reform U.S. International Tax System
U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2012
Revenue Proposals (February 2011), http://www.treasury.gov/.
76
President Obama’s 2012
Budget




Eliminate Oil and Gas Preferences
Eliminate Coal Preferences
Expand Information Reporting
Improve Compliance by Businesses
 Require Greater Electronic Filing
 Worker Classification
 Strengthen Tax Administration
 Expand Penalties
U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2012
Revenue Proposals (February 2011), http://www.treasury.gov/.
77
President Obama’s Framework for
Shared Prosperity and Shared Fiscal
Responsibility
The White House, http://www.whitehouse.gov/winning-the-future/fiscal-framework.
78
President Obama’s Framework:
another 12-year estimate: $5.3T
 Restore high-bracket tax rates to Clinton-era
levels: $1T
 Cut tax-expenditure spending through the tax
code: $1T
 Cut health care spending: $0.5T
 Cut other mandatory spending by: $0.4T
 Cut security spending: $0.4T
 Cut non-security discretionary spending: $0.8T
 Those reductions will carry with them a
reduction in net interest of: $1.2T
Brad DeLong, http://delong.typepad.com/sdj/2011/04/the-obama-deficit-reductionframework.html.
79
President Obama’s Framework:
Tax Reform
 $3 of spending cuts and interest
savings for every $1 from tax reform
that contributes to deficit reduction
 comprehensive tax reform to produce
a system which is fairer, has fewer
loopholes, less complexity, and is not
rigged in favor of those with lawyers
and accountants to game it.
The White House, Fact Sheet: The President’s Framework for Shared Prosperity and Shared
Fiscal Responsibility (April 13, 2011), www.whitehouse.gov.
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President Obama’s Framework:
Tax Reform
 Would not extend the Bush tax cuts
for the wealthiest Americans
 Builds on the Fiscal Commission’s
goal of reducing tax expenditures to
both lower rates and lower the deficit
 Corporate tax
 eliminate loopholes
 reduce distortions
 lower the corporate tax rate
The White House, Fact Sheet: The President’s Framework for Shared Prosperity and Shared
Fiscal Responsibility (April 13, 2011), www.whitehouse.gov.
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Consumption Tax Options
 Progressive Personal Consumption
Tax
 Subtraction method Value Added
Tax
 Treasury Department proposal for
Business Activity Tax (BAT)
 Credit-method (European) VAT
 National retail sales tax (RST)
Charles E. McClure, Jr., Why the United States Needs a Value Added Tax (2009),
http://www.taxadmin.org/Fta/meet/09am/papers/McClure.pdf.
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Earlier Tax Reform Proposals
 President’s Advisory Panel on Tax
Reform, Final Report (2005),
http://govinfo.library.unt.edu/taxrefo
rmpanel.
 U.S. Treasury Department, The
President's Tax Proposals to the
Congress for Fairness, Growth, and
Simplicity (1985).
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Earlier Tax Reform Proposals
 U.S. Treasury Department, Tax
Reform for Fairness, Simplicity, and
Economic Growth: The Treasury
Department Report to the President
(3 volumes, 1984).
 David Bradford and the U.S. Treasury
Tax Policy Staff, Blueprints for Tax
Reform (Arlington, VA: Tax Analysts.
2nd ed. 1984).
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Conclusion
 President needs 60 votes in the
Senate and cooperation in the House
 The whole tax system is in play
 And will be in play for years
 Lobbyists will be tripping over each other
 Change is almost always incremental
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Sources
 The President’s Economic Recovery Advisory Board, The
Report on Tax Reform Options: Simplification,
Compliance, and Corporate Taxation (August 2010),
http://www.whitehouse.gov.
 The National Commission on Fiscal Responsibility and
Reform, The Moment of Truth (December 2010),
http://www.fiscalcommission.gov.
 The Bipartisan Policy Center Debt Reduction Task Force,
Restoring America’s Future: Reviving the Economy,
Cutting Spending and Debt, and Creating a Simple, ProGrowth Tax System (November 2010),
http://bipartisanpolicy.org.
87
Sources
 Senators Ron Wyden & Dan Coats, Bipartisan Tax
Fairness and Simplification Act of 2011 (2011),
http://wyden.senate.gov/issues/legislation/details/?id=f
b5b603a-ed94-48a8-8ff1-c220c1052b3f.
 Representative Paul Ryan, The Roadmap Plan (2010),
http://www.roadmap.republicans.budget.house.gov.
 House Committee on Budget, The Path to Prosperity:
Restoring America’s Promise (2011),
http://budget.house.gov/UploadedFiles/PathToProsperity
FY2012.pdf.
 Joint Committee on Taxation, Present Law and Historical
Overview of the Federal Tax System (JCX-1-11), January
18, 2011, www.jct.gov.
88
Sources
 National Taxpayer Advocate, 2010 Annual Report to
Congress (December 31, 2010),
http://www.taxpayeradvocate.irs.gov/MediaResources/Annual-Report-To-Congress-Full-Report.
 Office of Management and Budget, 2012 Federal Budget,
http://www.whitehouse.gov/omb/budget.
 The White House, Fact Sheet: The President’s
Framework for Shared Prosperity and Shared Fiscal
Responsibility (April 13, 2011), www.whitehouse.gov.
 Joint Committee on Taxation, List of Expiring Federal Tax
Provisions, 2010-2020 (JCX-2-11), January 21, 2011,
www.jct.gov.
89
Sources
 The Tax Policy Center, Deficit Reduction Proposals,
http://www.taxpolicycenter.org/taxtopics/DeficitReduction-Proposals.cfm.
 Joshua Rosenberg, The U.S. Fiscal Trajectory: Causes
and Consequences (January 21, 2011),
http://www.abanet.org/tax/MID11/papers/RosenbergslidesABA-Boca-Rosenberg.pdf.
U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2012
Revenue Proposals (February 2011), http://www.treasury.gov/.
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About the Author
 Jonathan Barry Forman (“Jon”) is the Alfred P.
Murrah Professor of Law at the University of Oklahoma
College of Law and the author of Making America Work
(Washington, DC: Urban Institute Press, 2006).
 Jon was the Professor in Residence at the Internal
Revenue Service Office of Chief Counsel, Washington,
DC, for the 2009-2010 academic year.
 Jon can be reached at jforman@ou.edu, 405-325-4779,
www.law.ou.edu/faculty/forman.shtml.
 These slides are available at
http://jay.law.ou.edu/faculty/jforman/Speeches/2011A
BA-TAX-forman.ppt.
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