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GOP proposes 2-bracket tax system

By Kay Bell · Bankrate.com
Tuesday, March 20, 2012
Posted: 5 pm ET

The latest shot in the federal budget battle has been fired. House Republicans have released their fiscal year 2013 budget plan.

Republican budget wunderkind Paul Ryan, the Wisconsin representative who chairs the House Budget Committee, wants to collapse the current six tax brackets that range from 10 percent to 35 percent to just two, 10 percent and 25 percent.

The nasty alternative minimum tax would be gone.

As for corporate taxes, the Ryan budget would cut that rate from 35 percent to 25 percent.

And as for any tax hikes, fuhgeddaboudit!

Republicans are hoping that the Ryan plan will be more appealing to voters than President Barack Obama's budget issued in February.

The heart of the Obama plan is letting the Bush-era tax cuts on higher-income workers expire. That would raise the top income tax rate to 39.6 percent. Wealthier taxpayers also would face higher investment taxes. And while it wasn't technically in his budget, Obama hinted at a Buffett Rule under which millionaires would pay a tax rate of at least 30 percent.

As expected, there are no new taxes in the GOP plan. Instead, Ryan and his colleagues want to cut Uncle Sam's spending, specifically by reducing many programs that the Obama administration supports.

The bulk of the Republican budget's spending cuts would be to health care programs, including Medicare and Medicaid. It also would repeal the president's signature health care reform law.

Also facing the GOP budget ax are food stamps, student loans, welfare benefits and many farm subsidies.

Yes, there's a little something for everyone to hate in the Republican plan. But I've got to give them props for at least whacking a few of their traditional constituents as well as popular Democratic targets.

And when it comes to the tax code, one section of the Ryan plan sounds, well, almost Democratic.

The top 1 percent of taxpayers reap about three times as much benefit from special tax credits and deductions, excluding refundable credits, than do middle-income earners and 13 times as much benefit than the lowest-paid taxpayers, notes the Republican budget document.

"A code with high rates and lots of loopholes benefits those who can afford the best lawyers and lobbyists in Washington. Instead of advocating for lower rates for all, those with political muscle usually take the path to least resistance by pushing for deductions and carve-outs," says the GOP budget plan. "This not only lowers their effective tax rate, but also enables them to use the complexities of the tax code to stack the deck against their competitors there's nothing fair about that."

But the Republican proposal doesn't offer specifics on how to change that inequity.

It acknowledges that to get to just two tax brackets, some tax breaks will have to go. However, it doesn't specify which popular deductions or credits are safe and which are doomed.

And about those two tax brackets. There's also no detail on which income levels will fall into each.

To be fair, this isn't a real budget. It's a campaign document to help Republican candidates differentiate themselves in this election year from the president and other Democratic office seekers.

But the budget proposals from both Obama and the Republicans might resurface if, after Nov. 6, Congress does finally get around to seriously discussing some sort of tax reform.

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3 Comments
paying Congress
March 28, 2012 at 2:53 pm

Aristocracy or Democracy?

Did Congress get a pay raise in 2008?

Did countless Americans loose their life savings, their job, or their home in 2008?

How much will the Congressional pay raise cost taxpayers?

Who can do something about the Aristocrats that we are paying to ruin our lives?

Dmitry
March 21, 2012 at 2:43 pm

INSANITY