Senate Finance Committee Looks at Economic Security Provisions
Last week, the Senate Finance Committee released a seventh report in a series of papers examining the federal tax code and options for comprehensive tax reform reform. Over the past couple months the committee has look at simplifying the tax system for families and businesses; business investment and innovation; family, education and opportunities; infrastructure, energy, and natural resources; international competitiveness; and economic and community development.
The most recent paper takes a look at "economic security" tax provisions and policy alternatives that have been proposed. Specifically, the paper lists policies that would effect tax provisions and existing regulations on retirement, health care, life insurance and annuities, fringe benefits, and executive compensation. The Committee's paper focuses on complexity, low "bang-for-the-buck", and the tax treatment of executive compensation. The paper includes a number of options from previous proposals in each policy category. Examples of options include:
- Significantly reducing or repealing all tax expenditures for retirement savings and replacing them with automatic IRA enrollment or expanded Social Security benefits
- Expanding the saver’s tax credit and making it refundable
- Repealing the exclusion for employer-provided health benefits by imposing a cap which decreases over time until all employer contributions are subject to tax
- Taxing the annual increase in the "inside build-up" on life insurance contracts
- Imposing a 50% tax on employers for the net cost of meals, entertainment, gyms, and dining facilities provided to employees and customers, unless the cost is included in the employee's income
- Repealing limitations on employer’s deducting excess parachute payments and repealing the excise tax on the employee for such payments
The paper includes a broad variety of options with different goals. Some policies prioritize certain policy goals, such as increasing retirement saving or increasing health-related excise taxes. Others prioritize efficiency in the tax code by ending favorable treatment for certain tax-exempt forms of employee compensation over taxable income. Others try to define income more in line with what tax economists would consider to be appropriate. Policymakers would have to determine which mix of policies are aligned with what they are trying to accomplish with tax reform. Hopefully, they would work to simplify the code and make tax incentives they deem to be worthy of keeping more effective. To some extent, this what the Fiscal Commission's "Zero Plan" framework seeked to accomplish: making explicit the trade-offs between rates, revenue, and the broadness of the tax base.
Our tax code is overly complex and inefficient, unable to raise the revenue that we need to put the debt on a sustainable path. The recent work done by the Senate Finance Committee, House Ways and Means Committee, and Joint Committee on Taxation is a reminder of the many reasons and many ways to improve the tax system.