Post Tax Reform Evaluation of Recently Expired Tax Provisions

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Subcommittee on Tax Policy

Hearing on Post Tax Reform Evaluation of

Recently Expired Tax Provisions

Wednesday, March 14, 2018, 10:00 AM

By Michael G. Bindner

Center for Fiscal Equity

Chairman Buchanan and Ranking Member Doggett, thank you for the opportunity to submit my comments on this topic. The hearing will focus on expired tax provisions and what to do about them post tax reform. We have not yet shared our thoughts on this subject with the Committee, however these comments do reflect our usual position on this issue in comments on the Brookings-Urban Tax Policy Center web site. As usual, our comments are based on our four-part tax reform plan, which is as follows:

• A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
• Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25% in either 5% or 10% increments.  Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.
• Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• A VAT-like Net Business Receipts Tax (NBRT), essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age sixty.

Our comments reflect the first and last bullets of our tax reform plan, point one being the value added tax and point four being the Net Business Receipts Tax/Subtraction VAT. The one of the other two taxes, the employee-paid OASI taxes do not apply.

The NBRT/Subtraction VAT will contain many tax breaks and credits, but they will all be focused on benefits to individual employees and their families, not to specific industry breaks and no such breaks will be temporary, even those for health care.

Likewise, while it is tempting to grant industry-based exemptions for Value Added Taxes, because this tax is designed to be broad based and to tax both labor and capital, they should be less attractive as a hanger for industry pork. It is one thing to give industries a break on profit taxes, knowing that the labor for whatever activity is subsidized will be taxed by an individual income tax, as will any profits distributed to shareholders. When labor is no longer taxed except when it reaches CEO level salaries, as well as shareholder and employee dividends, it is harder to justify breaks for favored industries.

Enact our plan and the question of targeted breaks, both temporary and permanent, becomes easy to answer, with that answer being NO! We doubt the current system provides Congress with that kind of courage.

We will say what others will not. These tax breaks have probably already been paid for in campaign contributions. It is time to give up being squeamish and pass the tax breaks unless the design of the Tax Cut and Jobs Act specifically or implicitly abolishes them (in which case, don’t pass them). Until our proposal is adopted, either stop letting the beneficiaries contribute to your campaigns (and refund any current contributions) or make the tax breaks permanent. What appears to most of us in tax policy as an annual shakedown is unseemly. Please end it, because the proper allusions have as much to do with prostitution as extortion/ Either way, it looks criminal. If such allusions offend you, enact campaign finance reform.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.