The deficit reduction plan du jour comes to you courtesy of the Bipartisan Policy Center (BPC) Debt Reduction Task Force, co-chaired by Senator Pete Domenici and Dr. Alice Rivlin. Titled “Restoring America's Future,” it offers some attractive features for corporate taxpayers (as does the draft plan put forward by the President's deficit reduction commission last week; see my blog). For a summary of the main business-related proposals, click on MORE below:
1. A payroll tax holiday. Social Security payroll taxes for businesses and individuals would be suspended for 2011; the resulting boost in buying power would create between 2.5 and 7 million jobs over 2 years, according to the panel, citing Congressional Budget Office data.
2. An end to nearly all tax expenditures. This would likely include the R&D credit. The report cites “research to develop new products and production techniques” as a type of activity that might merit government subsidy, but adds that “tax expenditures are not necessarily the most effective way to promote these activities.”
3. A reduction in the top corporate income tax rate from 35 percent to 27 percent. This would put the United States about in the middle of tax rates for the OECD nations, instead of near the top. “Combined with other U.S. advantages as a place to do business (including our status as the world's central marketplace), this change will help attract investment and employment,” the BPC theorizes.
4. A new national debt reduction sales tax. The report describes this as a “modest” 6.5 percent levy, phased in over 2 years starting in 2012.
5. Capping and phasing out the tax exclusion for employer-sponsored health insurance. Starting in 2018, the plan would apply a cap to tax-favored contributions, reducing it each year over a decade until all employer-based health benefits are taxed.
6. Elimination of the special tax rates for capital gains and dividends. These would be taxed as ordinary income (to the maximum rate of 27 percent), with a $1,000 exclusion for capital gains.
All in all, not a bad package for business … unless your company happens to produce alcoholic beverages or beverages sweetened with sugar or high-fructose corn syrup. Both of those product categories are targeted for excise tax increases. ###