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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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