Repealing Itemized Deductions Leads to 4-Percent Tax Rate Cut ...

An analysis of individual tax rate reduction from closing tax expenditures, credits or deductions would only generate enough savings to reduce marginal tax rates by 4 percent, according to a report by the bipartisan Joint Committee on Taxation (JCT). The JCT based its findings on the assumption that the 2001 and 2003 tax rate cuts would expire, leading to higher rates to begin with and resulting in a reduced top rate of 38.02 percent.

The report stemmed from a September 19 request by Senate Finance Committee Chairman Max Baucus, D-Mont., during a committee meeting to discuss the alternative minimum tax (AMT) and provisions of the Internal Revenue Code that have either expired over the past year or are about to expire. Baucus asked the JCT about the concept of repealing all tax expenditures and using all or part of the revenues to reduce statutory marginal tax rates. The JCT agreed to find out.

Republicans attacked the study as misleading and hypothetical, warning that it should not thwart efforts to reform the tax code by lowering rates. ?There are some who may suggest that this study is evidence that tax reform should not be undertaken,? said Senate Finance Committee ranking member Orrin G. Hatch, R-Utah. ?Their position is that we should close deductions, credits or tax expenditures to broaden the tax base without any rate relief, in order to pay down the debt and without having to shrink the bloated size of government.?

Democrats, however, hailed the study as further proof that Republican plans to reduce tax rates would place a heavier burden on the middle class. ?Republicans have engaged in all kinds of twists and turns to escape the basic fact that their tax plan would give wealthy taxpayers an enormous tax break and harm middle-income families,? said House Ways and Means Committee ranking member Sander Levin, D-Mich., in a written statement ?This report from Congress? official scorekeeper highlights what has become increasingly clear: the Republican tax plan would either raise taxes on middle class families or further explode the deficit.?

The JCT outlined the results of its findings in an October 11 letter to both Baucus and Hatch (TAXDAY, 2012/10/15, O.1 ). JCT Chief of Staff Thomas Barthold explained that the estimate was an ?experiment? and that it did not represent all of the possible broadening of the tax base. He said the experiment makes several changes to present law, including: repealing the individual AMT; repealing the overall limitation on itemized deductions and personal exemptions for certain taxpayers, repealing all itemized deductions, taxing capital gains and dividends as ordinary income; and repealing the interest exclusion on state and local bonds issued after December 31, 2012. Transition relief was not provided under any repeal. Under the proposal, the individual income tax rates would be: 14.4 percent, 26.88 percent, 29.76 percent, 34.56 percent and 38.02 percent.

By Jeff Carlson, CCH News Staff

Letter from JCT Chief of Staff Barthold Regarding Repeal of Tax Expenditures and Reducing Tax Rates

Source: http://www.cchgroup.com/wordpress/index.php/tax-headlines/federal-tax-headlines/repealing-itemized-deductions-leads-to-4-percent-tax-rate-cut-study-finds/?utm_source=rss&utm_medium=rss&utm_campaign=repealing-itemized-deductions-leads-to-4-percent-tax-rate-cut-study-finds

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