More On Tax Planningfrom The Advisor's Professional Library
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
- Health Insurance: Health and Medical Savings Accounts A Health Savings Account is a trust created exclusively for the purpose of paying qualified medical expenses of an account beneficiary. Although they are popular, they are not without their pitfalls and the regulations can be complicated. Learn more about how to avoid federal taxation on the accumulation and distributions of HSA.
Senate Finance Committee Chairman Max Baucus said Monday that if lawmakers don’t act to rein in the nation’s debt and deficits the U.S. could be headed toward a “fiscal crisis like some European countries.”
Baucus, D-Mont. (left), said in a speech at the Bipartisan Policy Center in Washington that any tax reform plan “must be developed with a sound budget in mind that reduces deficits and debt.”
But a panel of tax experts agreed after Baucus’ speech that any tax reform or deficit and debt reduction plan would not occur before the presidential election in November, and would likely come next year.
Baucus said that while the U.S. has to get its “fiscal house in order,” as today “the debt-to-GDP ratio is 73%, the highest it has been since World War II,” the deficit is not the nation’s only hurdle. Since the last major tax reform in 1986, Baucus said, the world has “changed drastically” and the tax code hasn’t kept pace. It is “now acting as a brake on our economy when we need to move at full speed. It’s time we had a tax code for the 21st century.”
After his committee began a “comprehensive review” of the nation’s tax system last year, Baucus said that he’s “making progress on a detailed tax reform proposal that will attract bipartisan support.”
Baucus said that he will be holding hearings soon to discuss the deficit reduction proposals put forth by Alice Rivlin and former Senator Peter Domenici, the authors of the Bipartisan Policy Commission deficit reduction proposal, as well as the proposal put forth by the National Deficit Commission, better known as the Simpson-Bowles commission, “to better understand the tradeoffs” of each plan.
In reforming the tax code, Baucus said, “My view is everything is on the table.”
Baucus said a 21st century tax code must promote four goals, which are the “keys to America’s future and securing our lead in the global economy”: jobs from broad-based growth, competitiveness, innovation and opportunity.
Rivlin, the former Clinton administration budget director who’s now co-chairwoman of the Bipartisan Policy Center’s Debt Reduction Task Force, was part of a panel discussion after Baucus’ remarks. She said that she was glad to hear Baucus say that “we’re going to need more revenue as we address the deficit problem.” She also supports Baucus’ view that there should be a progressive tax rate and not a “flat tax.”
Bob Greenstein, president of the Center on Budget and Policy Priorities, said that “no one expects to rewrite the tax code during a lame duck” session of Congress, such as the session after the November election. The “first goal” of tax reform, he added, “will be raising revenue.”
Indeed, Bill Thomas, R-Calif., former chairman of the House Ways and Means Committee, who was also part of the panel, said that no one knows what will happen in a lame-duck session “unless you can tell me who will control the Senate and who [will] win the presidential election.”
Thomas also questioned what Baucus meant when he said “everything” was on the table regarding tax reform. “Does he mean Social Security? I know he means defense,” Thomas said.
As to the tax cuts that will expire at year end—which include the Bush tax cuts—Rivlin said: “The fiscal cliff is a real cliff. It would be very bad for the economy if we let all of the tax cuts expire all at once.”
Congress should have a workable “framework” to address tax reform and the debt and deficit that they can “come back to in six months,” Rivlin said. “Six months seems reasonable—it’s not kicking the can down the road, it’s moving the fiscal cliff for a few months, but it’s still there.”