On November 17, 2010, the Bipartisan Policy Center (BPC) Debt Reduction Task Force released a proposal that would radically overhaul the nation’s taxes. The Tax Policy Center has analyzed the distributional effects of the plan, applying the proposed tax changes in 2022 to 2018 incomes.

BPC proposal here.

Detailed discussion of TPC’s Analysis here.

TPC distributional estimates here.

Overview of the plan

• provides a one-year payroll tax holiday in 2011 to help stimulate economic recovery (not included in distributional analysis)
• replaces the current six-rate tax structure with two rates: 15 percent on the first $50,000 of taxable income ($100,000 for married couples, both indexed for inflation after 2012) and 27 percent on any excess
• eliminates the individual alternative minimum tax
• eliminates many individual tax expenditures, including 1) exclusion from tax of the inside buildup of life insurance and deferred annuities, 2) credits and deductions for higher education expenses, 3) the credit for child and dependent care expenses, 4) the exclusion from income of benefits under Section 125 cafeteria plans, and 5) the foreign earned income exclusion
• exempts the first $1,000 of net long-term gains from taxation (indexed for inflation); taxes any additional long-term gains and all qualified dividends as ordinary income and includes in income unrealized capital gains at death
• caps the exclusion from income of employer-sponsored health insurance benefits and phases out the exclusion over ten years, beginning in 2018
• limits combined employer and employee contributions to tax-deferred retirement accounts to the lesser of 20 percent of earnings or $20,000, indexed for inflation
• eliminates the itemized deductions for state and local income taxes, sales taxes, and property taxes
• replaces deductions for charitable contributions and mortgage interest with 15 percent refundable credits; allows the mortgage interest credit only for primary residences and limits to $25,000 of interest (not indexed)
• retains deductions for medical expenses in excess of 10 percent of adjusted gross income (AGI) and miscellaneous expenses in excess of 5 percent of AGI, both subject to a $2,300 floor ($4,600 for married couples, both indexed for inflation after 2012)
• replaces the standard deduction, personal exemptions, head of household filing status, the child tax credit, and the earned income tax credit with two refundable credits:
  • $1,600 (indexed for inflation after 2012) for each dependent child
  • an earnings credit equal to 21.3 percent of the first $20,300 of earnings (indexed for inflation after 2012); each worker under age 65 who could not be claimed as a dependent on another person’s tax return could claim the credit
• taxes all Social Security benefits, eliminates the elderly credit, and provides two new non-refundable credits:
  • 7.5 percent of Social Security benefits
  • 15 percent of the current standard deduction (including the additional standard deduction for the elderly) for individuals age 65 or older
• phases in an increase in the wage base for Social Security taxes so that it eventually covers 90 percent of earnings
• imposes a 6.5 percent (3 percent for 2012) broad-based consumption tax
• imposes an excise tax in 2012 of 1 cent per ounce on sugar-sweetened beverages (indexed for inflation after 2018)
• raises the federal excise tax on alcoholic beverages to 25 cents per ounce
• Estate tax: retains 2009 estate tax law ($3.5 million exemption and 45 percent tax rate)
• Corporate taxes:
  • reduces the corporate tax rate from 35 percent to 27 percent
  • eliminates many tax expenditures including the domestic production deduction, the research and experimentation credit, and accelerated depreciation for rental housing
  • retains deferral of income for controlled foreign corporations