Explosive Tax Code Changes From Debt Commission

Nov. 11, 2010 - PRLog -- How do you get an ever growing federal deficit under control?  Slash spending and radically change the tax code to raise taxes.  Chances of anything actually being passed into law?  Slim and none.

The so-called debt commission appointed by the White House provided its recommendations to slash the federal budget deficit by hundreds of billions per year.  The changes would impact Social Security benefits, middle-class tax breaks and defense spending.

The draft plan will have a big impact on the middle class by ending or capping parts of the tax code which are foundational to the current tax code and to the way Americans have structured their financial future. The biggest change would be the elimination of the home mortgage interest deduction. The plan did not provide any insight into how this would impact the housing market or the annual tax bill for home owners.

For Social Security, the retirement age would increase to 68 by 2050 and 69 by 2075. Benefits could be cut and taxes on higher income come earners would increase. The plan also seeks to rein in federal spending on health care, but the recently passed health-care overhaul could add trillions to the debt that the commission did not address.  Medical malpractice would be change to in hopes of slowing the growth of the Medicare program.

Capital gains and dividends would be taxed at the higher rates now imposed on wage income. To offset the increase, one version of the plan would lower individual rates to 9%, 15% and 24%.  The net change, such as how much more the government would collect, was not clearly defined.

The plan would slash spending by $410 billion in discretionary spending cuts by 2015. The proposal cuts the federal work force by 10%, at a savings of $13.2 billion by 2015.

For businesses, the commission would dramatically lower the corporate tax rate from the current top rate of 35% down to 26%.  A number of deductions would be eliminated at the same time, again providing some sore of off-set making the actual impact on individual businesses unclear. The research and development tax credit would be made permanent.

Overall, the commission claims the plan would hold down the growth of the federal debt by about $3.8 trillion by 2020, or about half of the $7.7 trillion forecast. The national debt now stands at $13.7 trillion.

The draft recommendations need votes from 14 of the 18 members of the budget committee to trigger votes in the House and Senate. The proposal is considered a starting point for discussions about how reduce the federal deficit.

"In the end, the president is going to have to decide whether to incorporate some of this into the 2012 budget," said David Walker, a former U.S. comptroller general and an advocate for deficit reduction. "He's going to have to lead, because if the president doesn't lead on this, it goes nowhere fast."

Mr. Obama avoided commenting on the plans specifics, as did Congressional leaders. Both said they will wait for a final product.

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