Doesn’t this plan represent a huge tax cut for the rich by repealing the capital gains tax, dividend taxes, and the estate tax? Why give the rich a tax cut, when the government has such huge spending demands in the future?
Almost every expert on both sides of the aisle agrees that our tax code is in urgent need of reform – it is needlessly complex, unfair and inefficient. The changes outlined in the Roadmap would address these problems and create a tax code that promotes economic growth and domestic job creation while boosting our international competitiveness – which would benefit all Americans.
The tax system in the Roadmap relies on common sense elements of tax reform – broadening the tax base and lowering tax rates – in order to make the tax code much more simple and fair.
The Simplified Tax incorporated in the Roadmap eliminates the tangled web of tax credits, preferences and deductions that are disproportionately used by the wealthy to lower their tax bills and ensures that people with similar earnings end up paying similar amounts of taxes. The Simplified Tax was designed to be roughly similar to the current tax code in terms of progressivity. In other words, higher income earners will continue to pay the majority of Federal taxes.
This new tax system has a generous exemption amount (nearly $40,000 for a family of four), so many low and moderate income individuals will actually pay no federal taxes.
This plan also eliminates the current tax penalty on saving and investment. Current U.S. tax law discourages saving by taxing it twice: once when the money is earned by the taxpayer, and again when it is saved and yields a return. That is unfair for the majority of Americans trying to save for the future. This is not a question of “rich” versus “middle income”; for instance, over half of U.S. households now own stocks, and the overwhelming majority has some type of bank account – all these people are penalized by the current tax treatment of savings.
The proposed change in the tax code will encourage saving and investment, which is critical for job creation, economic growth, and rising living standards. A growing economy benefits everyone, and is key for producing the revenue needed to support government spending obligations.
It seems this plan just replaces the Alternative Minimum Tax with another alternative way to pay taxes. Why not just have one way to pay taxes?
The current tax code requires taxpayers to use two tax systems to figure out their income taxes – and then requires them to pay the higher of the two. They have no choice. The Roadmap gives taxpayers a choice of whether to pay their taxes under the current code – with the deductions, credits, and so on – or under the simplified tax option with a tax form that would fit on a postcard. The taxpayer makes the choice.
Isn’t there a risk that the business consumption tax will simply be increased by future Congresses to grow government? After all, consumption taxes are an extremely efficient revenue raiser, and even a small increase could raise substantial sums. A spendthrift Congress may not be able to resist this temptation.
The BCT rate cannot just be incrementally raised in order to stealthily increase government revenue. The Roadmap requires a three-fifths supermajority vote in the House and Senate to raise Federal tax revenue above 19.0 percent of GDP
Isn’t the business consumption tax simply a European-style value-added tax [VAT]?
No. The Roadmap’s tax reforms are different in spirit and substance than European-style VATs. In spirit – unlike efforts to chase ever higher spending with new layers of higher taxes, the Roadmap's tax reforms lower the rates, broaden the base and are aimed to efficiently raise revenue needed to fund our government while maximizing growth. In substance – unlike imposing a new revenue machine on top of our current corporate tax (which imposes the second highest tax burden among industrialized countries), the Roadmap's 8.5% business consumption tax completely replaces the anti-competitive, job-killing corporate tax. The BCT of 8.5 percent is half the rate of other industrialized countries that currently have a VAT. As a result, businesses will have a greater incentive to locate their businesses here in the U.S. It will also make it easier to keep and create jobs in America while leveling the playing field for American-made products against foreign-made products.
Our looming fiscal crisis is driven by an explosion in spending. The Roadmap tackles the unsustainable growth of spending, and reforms our tax code to unleash the American engine of prosperity and growth.
What does this plan do to stop the trend of shipping jobs overseas rather than product that are made in America?
The tax reforms proposed in this plan will level the playing field for American-made goods and services in the international marketplace. It does so by removing taxes from American-made exports and putting an equal tax on foreign imports. This change will promote the export of American-made products, not American jobs.
To take an example, right now, Case New Holland tractors are at a competitive disadvantage against its foreign competitor, the Japanese-made Komatsu, because of the current U.S. tax code. When the Komatsu leaves Japan, Japan lifts its tax on the tractor, and it arrives in the US tax free. But when the Case tractor rolls off the assembly line in Racine and is exported to Japan, the U.S. first taxes it here and then it is taxed again when it enters Japan.
This kills American jobs and puts American companies at a competitive disadvantage in the 21st-century global economy. The Roadmap proposal would end these backwards tax policies and put American workers in the position to thrive, instead of struggling to survive, in this period of economic uncertainty.