How Congress can cap tax breaks
It's possible to reduce tax subsidies for wealthy Americans and reduce the deficit. Here are three proposals how:
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This tax, like the others, assumes the existing Alternative Minimum Tax remains on the books. But in the real world, if the EMT is enacted, I suspect the AMT would be repealed. If so, the plan would either have to impose a higher EMT rate or hit more middle-income taxpayers to generate the same amount of money.Skip to next paragraph
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Limit Tax Breaks to 2 Percent of AGI. The third broad cap on tax breaks is based on a plan designed by Harvard economist Marty Feldstein, Dan Feenberg at the National Bureau of Economic Research, and Maya MacGuineas of the New America Foundation. While they would have capped the value of most tax preferences at 2 percent of AGI for all taxpayers, TPC targeted the cap only at high-income households so we could better compare it to the other two plans.
Importantly, while Obama would target only deductions, this proposal taxes a much broader base. The 2 percent limit would also apply to the value of employer-sponsored health insurance, the child and dependent care tax credit, and general business tax credits.
Even scaled back to include only high-income households, this plan would generate twice as much money as the other two—more than $500 billion over 10 years. About 2.8 m illion households would pay more, and the average tax increase would be about $16,000. The top 0.1 percent would pay about $240,000 more.
These are just three examples of how Congress could tackle the $1 trillion in tax expenditures without battling over each one individually. In an ideal world, Congress would address each on their economic merits. But, this is Washington, and I wouldn’t be surprised to eventually see an across-the-board plan surface. And it is likely to look like one of these.
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