Sen. Murray Introduces Tax Cut Bill
Senate Budget Committee Chair Patty Murray (D-WA) introduced legislation yesterday to cut taxes for low- and middle-income workers in a few different ways. The legislation is intended to be fully paid for, and although there is no official CBO or JCT score, it appears to accomplish that goal.
The tax cuts include one that has been prominent in recent years and one that has not been part of the tax code for nearly 30 years. The former is an increase in the Earned Income Tax Credit for childless workers. The policy in this bill is somewhat more generous than the President's proposed expansion, nearly tripling the maximum credit from about $500 to $1,400 in 2015 and extending the income at which the credit fully phases out to 133 percent of the full-time earnings of a minimum wage worker, or about $19,000 in 2014. Like the President's expansion, it would also reduce the age at which someone can qualify to 21 (as long as they are not a student or a dependent). To cut down on fraudulent payments, the bill would double the penalty (from $500 to $1,000) for tax preparers who fail to comply with due diligence requirements when preparing returns which claim the credit.
The second tax cut would bring back a form of the two-earner deduction, which existed in the tax code prior to the Tax Reform Act of 1986. The pre-1986 version provided a deduction to married couples equal to 10 percent of the second earner's first $30,000 of income (for a maximum deduction of $3,000). The Murray version, based on a proposal by the Hamilton Project, would instead provide a 20 percent deduction of the second earner's first $60,000 of income (for a maximum deduction of $12,000) but would restrict it to families with a child under the age of 12. It would also phase out the deduction between the income ranges of $110,000 and $130,000, coinciding with when the child tax credit phases out.
According to Murray's office, these tax cuts would cost $145 billion over ten years. They would be paid for with two variants on policies that were included in the tax reform discussion draft produced by House Ways and Means Committee Chair Dave Camp (R-MI). The first would end exceptions to the $1 million limit on the deductibility of executive compensation. Currently, performance bonuses and stock options are generally not subject to the limit. The policy would also broaden the limit to apply to all current and former employees, not just the CEO and the four other highest-paid employees. A similar policy introduced last year in the Senate was estimated to raise $50 billion over ten years.
The second policy would tax multinationals with low overseas tax rates. Currently, multinationals can defer taxation on profits earned abroad until the money is returned to the United States. The proposal would tax profits in the year they are earned if the profits are subject to a foreign tax rate less than 15 percent (effectively creating a 15 percent minimum tax). The Camp discussion draft included a similar provision, raising $115 billion over ten years, but set a rate of 12.5 percent and only included it in the context of switching to a territorial system (which would eliminate U.S. taxation on active foreign income). The Murray version could raise somewhat more.
It is good to see lawmakers finding offsets for new proposals at a time when that has often not been the case. Some version of these proposals could be components of comprehensive tax reform as well.
