Two new studies highlight the difficulties in passing a tax reform package that includes significant rate cuts while maintaining the current revenue collection and progressivity in the tax code. The Joint Committee on Taxation estimated that any tax plan that cuts individual rates to 10 percent and 25 percent and at the same time repeals the Alternative Minimum Tax would add $3.8 trillion to the budget deficit over 10 years. And cutting the corporate rate to 25 percent would add another $1.3 trillion. The Tax Policy Center issued a report that broke out the effects similar rate cuts would have on various income groups. The study found the rate cuts to be "extremely regressive." In 2015, the average tax cut for a taxpayer making up to $25,000 would be $3. In contrast, a taxpayer earning an average income of $2.1 million will see a tax cut of almost $145,000, a 10 percent boost in their after-tax income.
The two studies present the difficulties in cutting tax rates while maintaining current revenue collection and income tax distribution. Raising $3.8 trillion in new revenue from any tax reform package would require eliminating the largest, and most popular, tax breaks, most of which benefit low- and middle-income households. To quote the Tax Policy Center's Howard Gleckman: "We're not talking about loopholes anymore."
See more on the studies at Tax Vox and The Hill
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