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WYDEN CALLS TAX REFORM PANEL’S PLAN
“THREE STRIKES” AGAINST MIDDLE-CLASS TAXPAYERS
Senator comments today on proposals, offers comparison
to recently unveiled “Fair Flat Tax Act of 2005”

November 1, 2005

Washington, DC – U.S. Senator Ron Wyden (D-Ore.) today called tax reform proposals prepared by the President’s Advisory Panel on Tax Reform “business as usual” approaches that throw “three strikes” at America’s middle-class taxpayers: shifting tax burdens from corporations and upper-income earners to the middle class, taking away vital tax deductions and credits, and adding billions of dollars to the budget deficit. Wyden planned to deliver the following remarks and enter them into the Congressional Record today. He is the author of The Fair Flat Tax Act of 2005, legislation introduced last week to provide a middle-class tax cut while making the U.S. income tax code flatter, simpler and fairer. More information about the Wyden legislation can be found at http://wyden.senate.gov.

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Statement by Senator Ron Wyden on the Recommendations
of the President’s Advisory Panel on Federal Tax Reform – November 1, 2005

The President’s Advisory Panel on Federal Tax Reform just spent one year and $1.5 million in taxpayer money to recommend a “business as usual” tax plan. When I say “business as usual,” I mean more breaks to special interests, big corporations and individuals in the top bracket who don’t earn a lot of their income by working for wages. The Pane’s “business as usual” approach will mean a heavier tax burden on many low and middle class Americans just so that the few with the highest incomes in the country can enjoy a two percent cut in their tax rate. The Panel missed a golden opportunity to build upon the historic, bipartisan overhaul of the tax system that President Reagan achieved almost 20 years ago.

The Panel could have produced a plan that would finally provide real tax relief to America’s hurting middle class, and it could have done that by making the tax system simpler, flatter and fairer. Rather than issuing a plan that will prove to be a revenue loser once the temporary Bush tax cuts are factored in, the Panel could have drafted a document that begins to reduce the deficit that is destabilizing our economy, our security and our future. But it chose not to do so.

Instead, the Tax Panel’s recommendations hurl three strikes at the middle class, and lobs softballs to special interests. The first pitch is a slider that shifts a sizeable tax burden from corporations and upper income earners to middle income taxpayers. That’s followed by a fastball that takes away many of the deductions and credits, such as those for child care and health insurance, that middle income Americans have come to rely on to get by. And the third pitch is a change up: the plan may look revenue neutral but when it flies across the plate it adds billions of dollars to the budget deficit and will force middle class Americans and their children to pay for tax cuts for the wealthy for years to come. Under the Panel’s game plan, the middle class strikes out.

Corporations, like the wealthiest Americans, are set up for a grand slam under the Panel’s plan. The Panel wants to cut their tax rates from 35 percent to 33 percent for upper income individuals and from 35 percent to 32 percent for corporations, and they both get complete relief from the Alternative Minimum Tax, or AMT.

Undertaking a massive housecleaning of the tax system is no walk in the park. I know because I have spent the last 10 months talking with tax experts in and out of government. I’ve studied flat tax plans and consumption tax plans, and I understand how the Joint Tax Committee and the Congressional Budget Office keep score about the winners and losers under dozens of different tax breaks.

What I’ve learned is that it is possible to make the tax system simpler, flatter and fairer without shifting a massive new tax burden onto the middle class. It is possible to reform the system and make a serious down payment on the deficit. I know because these are the goals of S. 1927, the Fair Flat Tax Act of 2005, that I introduced last week.

My tax reform proposal is simpler because it’s easier to understand and use. My legislation will include a new, simplified 1040 form that is one page, 30 lines, for every individual taxpayer. I won’t quibble over the fact that my 1040 has two fewer lines, but my 1040 doesn’t require taxpayers to file reams and reams of extra forms, like the Panel’s will.

My plan is flatter because it collapses the current system of six individual tax brackets down to three – 15, 25 and 35 percent – and creates a flat corporate rate of 35 percent. The Panel’s plan has four brackets, but the biggest difference here is that its upper bracket is plainly aimed at helping the rich – it gives them a two percent cut!

My plan is fairer because no longer will the system disproportionately favor the most affluent Americans and special interests at the expense of the middle class. Instead, it provides a major middle-class tax cut – paid for by the elimination of scores of tax breaks and by repealing the Bush tax cuts that favor the most fortunate few at the expense of the many. The Panel’s plan, on the other hand, takes away the breaks on the fringe benefits, like child care and health insurance benefits, that middle income families need to survive, but leaves in place those that favor the wealthy.

My plan is also fairer for American taxpayers because it treats work and wealth equally. Mine is a radical statement about tax law: America can do better than a two-tier system which forces a policeman to pay a higher effective tax rate than an investor who makes his income on capital gains and dividends. I ask the Panel: what is fair about taxing a firefighter’s hard-earned $50,000 in wages at 25 percent but taxing a corporate executive’s $300,000 in dividends and other unearned income at 15 percent or less?

Under the current Federal Tax Code, all income is not created equal in this country. Americans who work for wages, in effect, subsidize the tax cuts and credits and deferrals of those who make money through unearned income – the dividends from investments. It’s time to treat all taxpayers the same.

Let me be clear: I am not interested in soaking investors. I am a Democrat who believes in markets, and creating wealth. But what our country is all about is equality, and our Tax Code should treat everyone’s income more equally, too.

The legislation I introduced last week, S. 1927, adapts the flat tax idea to help reduce the deficit through fewer exclusions, exemptions, deductions, deferrals, credits and special rates for certain businesses and activities, and through the setting of a single, flat corporate rate of 35 percent. On the individual side, it ends favoritism for itemizers while improving deductions across the board: the standard deduction would be tripled for single filers from $5,000 to $15,000 and raised from $10,000 to $30,000 for married couples. Six individual rates are collapsed into three progressive rates, and income from all sources is taxed the same.

Several deductions used most frequently by individuals, those for home mortgage interest and charitable contributions, and the credits for children, education and earned income are retained. No one would have to calculate their taxes twice: this proposal eliminates the individual Alternative Minimum Tax (AMT), which could snare as many as 21 million American taxpayers in 2006.

I agree with the Panel on the need to eliminate the AMT on individuals. That is an important step forward for simplification. But building a fence around home mortgage interest deductions, limiting deductions for health insurance and charitable contributions and wiping out deductions for state and local taxes soak the middle class. That is neither fair nor necessary and, coming on top of a two percent cut in the top rate, it smacks of greed.

My proposal pays for retaining some deductions and credits important to the middle class by eliminating an estimated $20 billion each year in special breaks for corporations, and by directing the Treasury Secretary to identify and report to Congress an additional $10 billion in savings from tax expenditures that subsidize inefficiencies in the health care system. Eliminating these breaks would sustain current benefits for our men and women in uniform, our veterans and the elderly and disabled – as well as breaks that promote savings and help families pay for health care and education.

What makes the Fair Flat Tax Act truly unique is that it corrects one of the most glaring inequities in the current tax system: regressive state and local taxes. Under current law, low and middle income taxpayers get hit with a double whammy: compared to wealthy Americans, they pay more of their income in state and local taxes. Poor families pay more than 11 percent and middle income families pay about 10 percent of their income in state and local taxes, while wealthier taxpayers only pay five percent. And because many low and middle income taxpayers don’t itemize, they get no credit on their Federal form for paying state and local taxes. In fact, two-thirds of the Federal deduction for state and local taxes goes to those with incomes above $100,000. Under the Fair Flat Tax Act for the first time the Federal code would look at the entire picture, at an individual’s combined federal, state and local tax burden, and give credit to low and middle income individuals to correct for regressive state and local taxes. By contrast, the President’s Tax Panel proposes to eliminate the current state and local tax deduction with no credit or other mechanism to address individuals’ total tax burden. The Panel’s approach further skews the overall tax burden toward low and middle income taxpayers.

My move to repeal of some individual tax credits, deductions and exclusions from income – along with some serious changes to the corporate Tax Code – enables larger standard deductions and broader middle-class tax relief.

The deductions most important to most Americans remain in place in my proposal: the home mortgage deduction stays, as do child credits and charitable contributions, higher education and health savings. There is no need to cap or restrict these deductions and credits unless some pretty hefty tax relief is contemplated for corporations and those in the highest tax bracket.

In contrast to the Panel’s plan, my plan means the vast majority of American taxpayers will see a cut, particularly the middle class. Congressional Research Service experts tell us that middle class families and families with wage and salary incomes up to $150,000 will see tax relief. The Panel itself said that most taxpayers under its plan will not see much difference in their taxes.

On the corporate side my plan does something that may not be popular, but it’s right.

Each of us, including America’s corporations, needs to pay our fair share. Corporations that have used tax loopholes to avoid paying their fair share of taxes are going to see those loopholes close and they’re going to contribute.

Where the Panel throws strikes at the middle class, it tosses up softballs to corporate America. Among other changes, the Panel’s proposal gives corporations two giant breaks: a three percent cut in their rate, and complete elimination of the corporate AMT. When several dozen of America’s largest corporations have not even paid a penny in tax in one of the last few years, I seriously question the fairness – and fiscal soundness – of the Panel’s three percent cut in the corporate rate.

My legislation makes concrete progress toward deficit reduction. There’s a long way to go to stop the hemorrhaging in the Federal budget, but this legislation makes a real start by whittling the deficit down approximately $100 billion over five years. My plan aims for the black ink but the Panel’s plan heads recklessly into tens of billions of dollars in additional red ink on the budget ledger.

I am deeply troubled by the fact that the recommendations coming from the Panel today would continue to twist the Tax Code away from equal treatment of all income, widening the chasm between people who get wages and people who collect dividends. I am troubled that it hits middle class Americans particularly hard but treats special interests and the wealthy with kid gloves. And I can find no sound rationale whatsoever for adding massively to the country’s deficit.

Making the Tax Code simpler and flatter is going to make it fairer. My legislation is going to provide real relief to the middle class. It will treat work and wealth equally. It will make a start at reducing the deficit. I am ready to get to work with my colleagues and move it forward.

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