WASHINGTON -- The Concord Coalition said today that if the tentative agreement to extend expiring tax cuts for two years is approved, it should be followed by a major push to reform the tax code.
This effort should begin promptly with the Fiscal Year 2012 budget process and should incorporate the base-broadening suggestions recently made by the President’s National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center’s Debt Reduction Task Force.
Extending the tax cuts for two years, along with the proposed one-year payroll tax reduction for workers, will provide breathing room for the economy to recover. It comes at a high price, however, and must not distract from efforts to put longer-term deficit-reduction plans in place.
“The single best way to keep the momentum on deficit reduction is to move forward immediately on fundamental tax reform,” Concord Coalition Executive Director Robert L. Bixby said. “The recent reports from two commissions have shown that it is possible to get bipartisan agreement on a plan to simplify the tax code, lower rates and raise needed revenues. If the President and Congress pursue this goal in the upcoming budget cycle, it would be good for both short-term economic recovery and long-term deficit reduction, which is exactly what is needed.”
The proposed two-year extension of the tax cuts enacted in 2001 and 2003, together with measures to protect more middle-class taxpayers from the Alternative Minimum Tax, would mean an estimated revenue loss of more than $500 billion. The one-year payroll tax reduction would cost $120 billion. The temporary continuation of other tax breaks and an extension of emergency unemployment benefits through 2011 would cost a substantial amount of money as well.
The Bipartisan Policy Center plan proposed a full payroll tax holiday for workers and employers for one year. At the same time, however, that plan would phase in a new, more efficient, tax code in which most exemptions, credits and deductions would be eliminated or reduced in a progressive manner, in exchange for lower tax rates. The overall effect would be to raise revenues. A similar strategy of broadening the tax base and lowering rates was recommended by the President’s commission.
The Concord Coalition has said that Congress should not approve any permanent tax cuts that are deficit-financed.
“The high cost of this agreement will be worth the money if it clears the way for a major push on tax reform along the lines suggested by the commissions,” said Diane Lim Rogers, Concord’s chief economist. “We have to replace debate over the Bush-now-Obama tax cuts with a discussion about how to achieve better, more sustainable tax policy. It will not be worth the price if it is just another way of avoiding hard decisions."
The Concord Coalition is a nonpartisan, grassroots organization dedicated to fiscal responsibility. Former U.S. Senators Warren B. Rudman (R-NH) and Bob Kerrey (D-NE) serve as Concord's co-chairs and former Secretary of Commerce Peter G. Peterson serves as president.