Even though the fiscal cliff deal raised taxes on the wealthiest Americans, the U.S. deficit is still completely out of control and the government might have to raise other taxes to stabilize national debt.
By March 1, Congress will have to agree on some spending cuts to curb the deficit problem, but more revenue is needed. According to the Congressional Budget Office (CBO), the current tax code will produce revenue that is 18% of gross domestic product. That’s no small number; however, the bipartisan Simpson-Bowles Commission has said that 20% is needed to stabilize national debt, a Huffington Post column has pointed out.
This means the government has to increase taxes again. However, the fiscal cliff deal locked in the Bush tax rates for everyone making less than $400,000 a year, so changing the individual marginal tax rate isn’t possible.
Instead, Bob Burnett has come up with 10 potential sources of revenue based on research from the CBO and the Center for American Progress. If all 10 were enacted, the U.S. could generate an additional $2.155 trillion over the next decade.
The list includes closing a lot of loopholes, which will raise taxes on individuals who have been taking advantage of them to reduce their income.
10. Eliminate tax subsidies for agribusiness
9. Deny mortgage deduction for vacation homes and yachts
8. Eliminate the S Corporation loophole
This could affect a lot of physicians if their practice is set up as an S Corp. Closing the loophole means physicians couldn’t treat income as a shareholder distribution, which avoids the Medicare tax.
7. Close the “carried interest” loophole
Private equity and hedge fund managers can convert their income into capital gains, which are taxed at 20% instead of 39.6%.
6. End special oil, coal and gas tax breaks
5. Eliminate tax breaks for inventory accounting
Current law allows corporations to choose any method for valuing inventory and goods sold, which means they choose the one most favorable to them. However, the proposed change would require taxpayers to use the “first-in-first-out” method.
4. Eliminate corporate write-offs for meals and entertainment
3. Close tax loopholes that incentive moving jobs overseas
2. Limit itemized deductions for the wealthy
President Obama has proposed capping itemized deductions at a 28% rate.
1. Tax fossil fuels
A national carbon tax has the support of both environmentalists and business leaders like New York Mayor Michael Bloomberg and ExxonMobile Chief Executive Officer Rex Tillerson.
“It would be a rare political twofer that produces massive revenues while lowering emissions of carbon dioxide,” writes Burnett.
Read full explanations for all 10 taxes here.