New Tax Code in Store Soon for the United States?

July 11, 2013 — 1 Comment

Senate Finance Committee Chairman Max Baucus (D-Mont.) and the panel’s top Republican, Utah’s Orrin Hatch are attempting a ‘blank slate’ approach to the current U.S. tax code.

In turn, the Senators are wiping out all the tax provisions now in the code and are now putting the onus on their supporters to prove why the provisions should be left in the code. The have until July 26th left to make their point.

Baucus and most Democrats say the government needs new revenue. They say not all the money gained by scrapping tax breaks should go to lowering tax rates. Most Republicans, including Grover Norquist, president of Americans for Tax Reform, take the opposite view. Norquist, on Wednesday, threw his support behind the latest bid by Senate tax writers to overhaul the U.S. tax code.

“A revenue-neutral reform target is an absolutely essential precondition to any tax reform,” Norquist wrote. “Tax reform should not be a stalking horse for a net tax increase.” Norquist listed several other steps senators should take including eliminating taxes on capital gains and dividends

Politico has released what it thinks are some of the tax breaks currently in the tax code that could be purged and possible lobbyists’ responses to the suggested reform.

The mortgage interest deduction:

The government allows homeowners to deduct up to $1 million each year in mortgage interest, including for vacation homes. It’s now the government’s biggest tax expenditure. The Congressional Budget Office projects “the break will cost more than $1 trillion over 10 years.”

“That’s crazy,” said Roberton Williams, a tax expert at the Urban Institute. Lawmakers are looking to cut the cap in half down from the current $1 milllion threshold. On the other hand, lobbyists will point out that the housing market is still very fragile after the crisis and that the tax break will need to stay.

Carried interest:

Cost: about $17 billion over 10 years

“This is the provision that lets Wall Street types like Mitt Romney pay the lower capital gains tax on their income instead of normal income tax.” Hedge fund managers, private equity executives and others working on Wall Street pay a special tax rate on profits-based compensation known as carried interest.

Democrats believe that Wall Street executives should be taxed as if it is ordinary income. Lobbyists, however, will want to keep the provision in tact because higher rates would hurt the economy. “Increasing taxes on carried interest would hurt all partnerships that strengthen thousands of companies across the country,” said Steve Judge, president of the Private Equity Growth Capital Council.

Wind production tax credit:

Cost: it’s $8 billion over five years

“The government offers a 2.2 cent per kilowatt tax credit for wind energy produced during a 10-year period.” This credit was supposed to end last year, however, it was revived as part of the fiscal cliff deal. “Businesses should have customers, not political patrons,” said Rep. Mike Pompeo (R-Kan.), who says it should be allowed to lapse at the end of this year.

Lobbyists will try to keep it in the new code by tieing it to current job creation. “It’s working to drive wind energy jobs and manufacturing across America,” says Peter Kelley, a spokesman for the American Wind Energy Association. “We need a stable business environment to keep up to $25 billion a year of private investment.”

Corporate jets:

Cost: about $3 billion over a decade

The actual break just allows corporations to write off jets faster than other kinds of aircrafts. “That reduces their tax bills because companies are allowed to subtract their costs from their receipts when calculating how much of their income is subject to taxation.” Democrats will try to strike down this provision by showing the Republicans as only defenders of the wealthy.

Lobbyists will surely argue that killing the break will hurt manufacturers. “The idea behind such policies is to encourage American businesses to continually upgrade the products they use, so they can remain competitive,” said Dan Hubbard, spokesman for the National Business Aviation Association.

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One response to New Tax Code in Store Soon for the United States?

  1. 

    In your opinion, do you believe that there will be significant tax reform in the next three years? I am not talking about raising rates or such, but rather reform that could be compared to the 1986 tax reform(not in lowering tax rate but rather the simplification of tax law or increasing tax law)

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