Abstract: THE U.S. FEDERAL code is in desperate need of reform. In this year's presidential election, both Republican nominee Mitt Romney and President Obama made corporate reform an issue in the campaigns, and it was one issue on which the candidates found more common ground than difference, with proposals for lower rates and a shift to--or, in the president's case, at least openness to--a territorial corporate system. There is also broad agreement that the individual side of the U.S. code is in disarray. Setting aside the political arguments about who is or is not paying their fair share of income taxes, over the past decade, the U.S. has imposed on itself a regime of temporary policymaking. While a favorite statistic of would-be reformers is that there have been more than 15,000 changes to the code since the last overhaul of the federal income system in 1986, (1) the defining characteristic of income policy in this country is captured by a 2011 publication from the Joint Committee on Taxation (JCT). The JCT document listed expiring federal provisions by year over the decade from 2010-20. Not including temporary disaster relief breaks, the three years beginning with 2010 saw the expiration of 31, 56, and 37 provisions of the federal code, respectively. (2) Among the most perishable federal laws are the set of provisions, primarily affecting businesses, which have earned the moniker tax because Congress habitually extends them year-by-year. The extenders sit alongside the centerpiece of temporary policy in the U.S.: our current marginal rates on earned income. Enacted as a 10-year policy in 200I during the George W. Bush administration, modified in 2003, and extended for two additional years in 20I0 by President Obama and the Democratic mth Congress, this policy has become a partisan flashpoint and a source of significant uncertainty for U.S. taxpayers. If the Bush (or Bush-Obama) rates are allowed to expire under current law at the end of the 2012, calendar year, the marginal rates on earned income will increase from 25, 28, 33, 35 percent to 28, 31, 36, and 39.6 percent, and the To percent bracket will be reinstated. All this temporary policy making has culminated in more than three-dozen expiring provisions that form strata in what has come to be known as the fiscal cliff. The fiscal cliff is a set of federal fiscal policies, including increases, new taxes, and Medicare provider payment cuts enacted with the Affordable Care Act, along with impending cuts to national defense and discretionary spending enacted as part of the sequestration provisions of the Budget Control Act of 2012, that are scheduled to go into effect on January I, 2013, or sometime during that year. In addition to the marquee increases in marginal income rates, the fiscal cliff is comprised of a spate of other expiring provisions, including: the American Opportunity Tax Credit, the doubled Child Tax Credit (now $1000, up from $500 per child), enhanced refundability of the Child Tax Credit, expansion of the Earned Income Tax Credit (EITC), elimination of phase-outs for itemized deductions and personal exemptions, reduction in the marriage penalty, lower capital gains rates (15 percent instead of 20 percent), 15 percent dividend rate rather than taxation as ordinary income, and the estate reduction from 35 percent over $5 million reverting to 55 percent over $1 million. Together, the cost of all income provisions will be $II0 billion for 2013, $340 billion for 2013-14, and $z.8 trillion for the ten-year period 2013-22. Add to that the expiration of the 2 percent payroll holiday (2013 cost: $90 billion) and a set of extenders including the R&E credit and the alcohol fuel credit ($30 billion in 2013, $455 billion from 2013 to 2022). (3) In total, if all fiscal cliff provisions are allowed to expire or take effect, the Congressional Budget Office (CBO) estimates that the U. …
Publication Year: 2013
Publication Date: 2013-01-11
Language: en
Type: book-chapter
Indexed In: ['crossref']
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