Erskine Bowles and Alan Simpson, co-chairs of President Obama’s Deficit Commission, on April 19 released a more modest and revised deficit-reduction plan that calls for fewer new taxes and seeks greater savings from cuts to entitlement programs. The $2.5-trillion deficit-reduction plan, which is in addition to the $2.7-trillion deficit reduction already passed in the Budget Control Act of 2011 (P.L. 112-25 ) and the American Taxpayer Relief Act of 2012 (P.L. 112-240 ), now proposes raising $585 billion in new revenue and an equal amount in cuts for Medicare and other related spending.
“By picking up on where budget negotiations left off last December, we have crafted a plan that we believe could be enacted into law over the course of this year, and would represent a tremendous step forward in putting our nation on a fiscally sustainable course,” stated Bowles and Simpson. The plan, however, attracted little attention on Capitol Hill where some Democratic lawmakers disparaged the revised effort.
Under the duo’s tax reform plan, House and Senate tax-writing committees are called upon to first bring down individual and corporate rates, while reducing the deficit using what they term a ”zero plan” approach that starts by eliminating all tax expenditures, lowering rates and requiring restoration of tax expenditures to be offset with higher rates. The plan requires tax reform to reduce rates, maintain progressivity of the tax code, adopt a territorial tax system, promote economic growth and competitiveness, and generate $585 billion in net new revenue under traditional scoring.
Bowles and Simpson call upon Congress to enforce the revenue target with an across-the-board limitation of tax expenditures if Congress fails to enact the specified tax reforms either through a limit on the value of itemized deductions and exclusions or a cap on the amount of tax expenditures an individual can claim, with a portion of savings devoted to deficit reduction and a portion to reducing tax rates.
Bowles and Simpson called the U.S tax code ”a convoluted system that discourages work and investment, presents individuals and businesses with perverse economic incentives, and raises insufficient revenue to finance our spending.”