At a hearing titled “Confronting the Looming Fiscal Crisis,” held by the Senate Committee on Finance on Tuesday, testimony focused on substantial changes to Medicare, the tax code and retirement. Among the proposals was changing the tax treatment of retirement plans.
Testimony from Pete Domenici, former Republican senator from New Mexico, and former Congressional Budget Office (CBO) director Alice Rivlin, who also headed of the Office of Management and Budget in the Clinton administration, addressed changes they said were needed to avoid the “fiscal cliff” approaching at the end of the year through automatic spending cuts and tax increases. The combination of massive changes has led the CBO to predict that lack of attention to the impending cuts and increases could put the U.S. into a recession in the first half of 2013.
In their joint testimony, Rivlin and Domenici advocated changes to Medicare that would create Medicare exchanges and limit government costs, as well as changing the way those costs are delivered. The two also proposed substantial changes to the tax code that included, among other things, raising additional revenue—something that was not popular with Republican attendees.
Rivlin and Domenici proposed a two-bracket tax structure of 15% and 28%, with no standard deduction or personal exemptions. The corporate tax rate would be reduced to 28%. Capital gains and dividends would be taxed as ordinary income, excluding the first $1,000 of realized net capital gains or losses.
What Your Peers Are Reading
The Earned Income Tax Credit (EITC) would be replaced by a flat refundable per-child tax credit of $1,600, which is higher than currently allowed, and a refundable earnings credit similar to the Making Work Pay credit.
In addition, itemized deductions would be replaced by a flat 15% refundable tax credit for charitable contributions and for up to $25,000 per year, not indexed, mortgage interest on a primary residence.