AEI Scholars Bookend the Witness Table at Senate Finance Committee

Last week, I had the privilege of being one of four witnesses invited to testify at the Senate Finance Committee’s wide-ranging hearing on reforms to the individual income tax. Sitting down the witness table from me was AEI visiting fellow Ramesh Ponnuru. Our testimonies approached tax reform from different vantage points. Ponnuru homed in on one tax policy — what he calls the “parent tax” — and made a clear case for the expansion of the child tax credit as a remedy. I gave a broader view of tax reform principles and the importance of broadening the tax base (that is, limiting deductions, exclusions, and credits).

Testimony: The Opportunities for Individual Tax Reform

The opportunity for fundamental and comprehensive tax reform is before this Committee for the first time in many decades. As every Member of this Committee well knows, the tax code has frequently and sometimes significantly changed over the last 30 years, but not since 1986 has it been truly reformed in a manner that sought to broaden the base – that is, eliminate special deductions, credits, and exclusions– while lowering statutory tax rates. As Senators Hatch, Wyden, Roberts, and Grassley know firsthand, that legislative process was arduous and sometimes controversial, but the 1986 Tax Reform Act did result in a simpler income tax code with a broader tax base and significantly lower statutory tax rates.

AEI Tax Brief: Child Tax Credit Options

Under current law, a taxpayer can claim a Child Tax Credit (CTC) of up to $1,000 for each qualified child under 17 years of age. The credit amount is dependent on the taxpayer’s modified adjusted gross income. If the CTC is greater than the amount of taxes owed, taxpayers may be eligible for the partially refundable Additional Child Tax Credit.

AEI Tax Brief: Repealing the Personal Exemption

Under current law, a taxpayer can claim a personal exemption for themself, his or her spouse, and each qualified dependent. The personal exemption amount for 2017 will be $4,050. The actual benefit depends on the taxpayer’s marginal tax rate and gross income. Taxpayers can also claim a standard deduction as an alternative to itemizing deductions. In 2017, the standard deduction will be $6,350 for single filers, $9,350 for head-of-household filers, and $12,700 for married couples filing jointly.

Trump Says His Tax Break Will Get Companies to Hire More Workers. Companies Say It Won’t.

“Trump wants to bring that money back to the United States to spur jobs and growth, and he’s been aggressively pitching a plan to offer companies a large tax break if they bring all those dollars back to America soon. Under Trump’s proposal, companies would only have to pay a 10 percent tax on money they bring back — a process often called ‘repatriation’ — rather than the usual 35 percent. . . . The [George W. Bush] White House tried this once before, and the results were grim. . . . “

3 Reasons Why Tax Reform Could Have Unintended Consequences

[Alex] Brill estimated that of all the money saved by local and state taxpayers with this deduction, 89 percent comes from those with incomes of $100,000 or higher. “In other words, the policy itself is highly regressive,” Brill told the Senate Finance Committee in prepared testimony Sept. 14. “It is available only to the minority of taxpayers who itemize their taxes (generally higher-income taxpayers) and is more valuable to taxpayers in higher tax brackets.””

Economist Warns of Dire Consequences if Tax Reform Stalls

“[Alex Brill] emphasized that Congress’s tax reform timeline should not be dictated by attempts to ‘micromanage the quarter-by-quarter performance of the U.S. economy.’ Still, Brill acknowledged that it’s politically important to prioritize and maintain momentum on tax reform. ‘Moving slowly raises the risk that the process will never conclude,’ he said.”

MGA’s Alex Brill on CNBC’s Squawk Box

“I see the speech yesterday as the president’s strongest commitment into engaging in this policy process…. We are eight months into the administration…. But I am hopeful this is the beginning, as the president said, the kick off I think of a concerted effort to move from the tax code we have to a kind tax code that republicans have been talking about for well more than a year now. One with a broader base and lower rates.”