There is no denying the fact that the United States is in a very precarious situation with regard to our ever-growing financial burdens. President Obama’s deficit commission has released draft proposals of how the nation can eliminate a projected deficit of $4 trillion in the next decade. The proposal is dramatic, to say the least, and drew criticisms from all parties. Even though the group did not muster the 14 votes needed to prompt congressional action it is worth taking a lot at some of the proposed tax changes or recommendations for both individuals and corporations in the coming years.
The Wyden-Gregg Reform has been promoted by Senators Ron Wyden (D-OR) and Judd Gregg (R-NH) for several months and includes the following tax changes.
Individual tax reform
- Establish three rates of 15%, 25%, and 35%
- Exclude mortgage deduction of home equity loans, 2nd residences, and mortgages over $500,000
Remove AMT and PEP - Remove deductions for state and local tax, cafeteria plans, and miscellaneous itemized deductions
- Triple the standard deduction to $15,000 for individuals and $30,000 for married couples
- Remove or modify other tax expenditures
- Limit charitable deduction- 2% AGI
- Cap income tax exclusion
Corporate Tax Reform
- The reduction of the corporate tax rate to 26%
- A permanent extension of the research credit
- Expenditures such as the domestic production deduction, energy tax preferences for oil and gas, depreciation rules, and LIFO method of accounting will be modified or eliminated
- International tax reform to include a territorial system
There is also talk of another proposal titled the Zero Plan. Under the Zero Plan, there are many tax possibilities in the future. For example, the income tax rates would max out at 28% which matches the top rate seen after the last major tax reform. Under the Zero Plan, the three tax rates could be reduced from 13%, 21%, and 28% to 8%, 14%, and 23% if credits, deductions, and exemptions are repealed.
Other changes proposed by the commission include the following:
- Reduction of the annual cost-of-living increases for Social Security recipients as well as raising the retirement age to 68 by 2050 and 69 by 2075.
- Reduction of White House and Congressional budgets.
- Freeze on federal salaries, bonuses, and other compensation (at non-Defense agencies) for three years.
- Reduce federal workforce by 10%.
Reduction of farm subsidies- $3 billion per year - Cost-of-living reform for early civilian and military retirees.
- Elimination of funding for commercial spaceflight.
These are just a few of the proposed changes that have been suggested. No one believes the proposals are going to be accepted or denied outright as there are many things to consider from all parties. One thing is certain; change is on the horizon, however, what changes take place remains to be seen.