Restoring a fair, simple, and pro-opportunity tax system

[papau]

http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=310260
http://www.americanprogress.org/atf/cf/{E9245FE4-9A2B-43C7-A521-5D6FF2E06E03}/PP_TAX_LAYOUT2005.pdf
http://www.americanprogress.org/atf/cf/{E9245FE4-9A2B-43C7-A521-5D6FF2E06E03}/PPP_TAX_SUM.pdf
http://taxpolicycenter.org/

Executive Summary

The current tax code is unfair, unnecessarily complex, and has failed to meet our national priorities. Today, we are faced with a fundamental choice for our tax structure: continue the policies that have failed the vast majority of taxpayers and our country for the benefit of a few, or reform the tax system consistent with progressive principles. It is time for a fairer and simpler tax system that reduces the massive deficits created over the last four years, strengthens the middle class while honoring their work, and creates opportunity for Americans of all income levels to succeed.

Restoring a fair, simple, and pro-opportunity tax system, while generating the resources necessary to meet our looming challenges, requires moving our tax system in an ambitious new direction. The Center for American Progress proposes a comprehensive tax reform plan that rewards hard work and promotes shared prosperity. We propose a plan that would tax each kind of income according to the same rate schedule, whether the income is derived from wages, salaries, capital gains, or dividends. Our plan shifts the share of taxes away from the regressive payroll tax and onto a restructured income tax. It reduces complexity by establishing a simpler, more progressive three-rate structure and it eliminates the Alternative Minimum Tax, in addition to closing corporate and individual loopholes. Our plan enhances opportunity by reducing the deficit to strengthen the economy and it promotes retirement savings for millions of Americans who currently receive no savings incentives through the tax code. Furthermore, our plan improves the Earned Income Tax Credit and expands the number of families eligible to receive the federal child tax credit. Ultimately, the Center for American Progress's reform plan increases the take-home pay of low- and middle-income families and generates the funds our country needs to meet its vital domestic and national security commitments.

SIMPLICITY – REDUCE THE NUMBER OF TAX BRACKETS: President Bush has added over 10,000 pages to the federal tax code. The American Progress plan would make the system far simpler. The number of tax brackets would be reduced from six to just three – 15 percent (for income up to $25K), 25 percent (for income between $25K and $120K) and 39.6 percent (for income over 120K).

SIMPLICITY – CLOSE LOOPHOLES: The plan would close loopholes in the corporate income tax code, including the "Bermuda" loophole that allows U.S. firms to avoid paying taxes by moving their operations overseas. By closing individual loopholes, the plan would also eliminate the need for the Alternative Minimum Tax (AMT) – a special rate initially created to ensure that the very rich pay some taxes. Without reform, the AMT would impact 36 million Americans by 2010.

FAIRNESS – TAX ALL INCOME THE SAME: Under the Bush administration's tax policies, middle-class Americans are shouldering more of the burden. The American Progress plan corrects that by simplifying the rate structure and taxing each source of income the same – whether it is dividends from investments or wages.

FAIRNESS – ELIMINATE REGRESSIVE SOCIAL SECURITY TAXES: One of the most regressive components of our tax system is the employee Social Security payroll tax. The flat 6.2 percent tax employees pay on their first $90K of income imposes an effective tax rate four times larger for middle-income workers than the top 1 percent. The American Progress plan would eliminate it. Social Security funding would be strengthened by eliminating the cap on employer contributions (currently there is no employer contribution for income in excess of $90K) and devoting 2.25 percent of Gross Domestic Product (GDP) from general revenues. The plan would not only preserve Social Security funding but cut the program's long-term deficit in half.

FISCAL RESPONSIBILITY – REDUCE THE DEFICIT: The federal government is on pace to rack up another $1.4 trillion over the next ten years. The American Progress plan is fiscally responsible, reducing the revenue shortfall by $478 billion compared to the administration's budget. At the same time, the American Progress plan would include a tax cut for the 70 percent of Americans who earn up to $200,000, providing an average cut of over $600.

OPPORTUNITY – INCENTIVES FOR ALL AMERICANS TO SAVE: The American Progress plan would create new opportunities for tens of millions of Americans to save and create wealth. The current deduction system is upside-down – providing a greater incentive to save if you have a higher income (and pay a higher marginal tax rate). The plan would create a new across-the-board 25 percent refundable tax credit for retirement savings. This would provide the same incentives for every American – whether an investment banker or a secretary – to save, including the 33 million Americans who don't earn enough to have income tax liability.

OPPORTUNITY – INCREASE TAKE HOME PAY FOR LOW-INCOME TAXPAYERS: The American Progress plan provides more take home pay for those who need it most. Currently, more than 20 million of the country's poorest children receive less than the full benefit from the child tax credit, and 8 million children receive no benefit at all. The American Progress plan gives every family earning over $5,000 a year access to the child tax credit. It also makes sure that single working parents who receive the Earned Income Tax Credit don't lose their benefits just because they get married.

[EVDebs]

1. Dems could take the lead on this issue ! Tax equity and end to corporate

and wealthiest's loopholes could ease the burden that globalization is putting onto the middle and lower classes. Too much wealth concentration in the US at the very top making the republic insecure from within !

[whistle]

2. It's too late for these kinds of measures as the ultra-wealthy....

...already have the deck stacked in their favor. Any system that claims to be creating more equitable taxes and savings across all income lines is total bullshit. These proposals will encourage greater disparity between the poor and the rich because the rich control wages, prices and virtually all economic functions. So without the self-regulating processes of the graduated income tax and the regulations on monopolies and big corporate trusts, the poor and middle classes will always pay while the wealthy will maintain their power and control. That is the nature of capitalism and the evolution of renegade capitalism into fascism and totalitarian government.

Revolution is the only way to break the cycle, before the whole planet implodes through the capitalistic greed and waste.

[FormerDittoHead]

6. Or a wealth tax of some kind...

>Revolution is the only way to break the cycle, before the whole planet implodes through the capitalistic greed and waste.

I actually agree with you that income tax, like sales tax, is regressive and places a greater burden on lower classes, preventing them from accumulating wealth.

A national wealth or property tax in concert with an income tax, however, would promote the "churning" of the upper classes' wealth back into the economy.

Of course, whenever anyone proposes a national wealth or property tax, someone talks about his ol' grandpa' and how he'd never would have been able to afford the family farm, forgetting of course, that it's already taxed by the local taxes, and that while he was making the money to PAY for the farm, he paid a higher income tax rate than rich people...

[pelagius]

3. This is a sensible plan and worth promoting...

...in the absence of total overthrow of capitalism and establishment of a utopian state in the next, oh I don't know, four to six years.

Democrats need to reshape themselves as the party of common sense and fiscal responsiblity. This proposal seizes that opportunity in several key areas.

[papau]

4. I agree -but rather than Soc Sec on FIT via a 2.1% of GDP committment, I'd

rather see no wage cap with the FIT picking up a "payroll tax" on unearned income.

Too many very rich excape any tax on unearned income.

[pelagius]

5. I like that! n/t