US
President Barack Obama seems serious about lowering the monumental budgetary
deficit through aggressive tax reform. His newly formed National Commission on
Fiscal Responsibility and Reform has recently proposed various tax measures
eliminating benefits and involving deeper rate cuts as well as simplification of
the complicated tax structure. These measures aim to reduce the federal budget
deficit by $3.8 trillion in nine years. According to the draft report, presented
on November 10, 2010, the tax proposals aim to lower tax rates, simplify the tax
system, broaden the tax base and reduce government spending on tax expenditures.
The Zero Plan proposals seek to consolidate the current six tax brackets into
three along with tax rate reductions, made possible through elimination of tax
expenditures on deductions and credits. The Zero Plan also seeks to eliminate
the preferential tax rate for long-term capital gains and qualified dividends.
Other deductions sought to be eliminated include deductions for state and local
taxes besides tax free fringe benefits through cafeteria plans. Mortgage
interest deductions are also sought to be limited to exclude interest on a
second home and interest on home equity loans. Even charitable deductions would
be limited to the amount in excess of two per cent of a person’s adjusted gross
income. The tax free portion of employer provided health insurance would also be
limited. The Tax Reform Trigger proposal targets itemized deductions and health
insurance benefits, which would need to be reduced by around 85 per cent by 2015
to reduce the federal deficit by $80 billion in 2015. The Tax Reform Trigger
plan would continue to reduce the tax-deductible portion of these deductions
each year until more comprehensive tax reform is legislated.
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