By Zayida Baker
Sen. Bill Nelson, D-Fla., chaired a September hearing of the Subcommittee on Fiscal Responsibility that prescribed a tax code with more taxpayers, lower rates and fewer loopholes—a platform that he and Democrats often contradict.
Former Federal Reserve Chairman Alan Greenspan, Professor Martin Feldstein, former Michigan Gov. John Engler, Professor John Taylor, and Professor Edward Kleinbard testified.
The newly reinstated subcommittee’s second hearing addressed “tax expenditures,” or loopholes, through which government loses revenue—$1.2 trillion in 2008—that it must recoup elsewhere.
Nelson recounted that, as a congressman, he had voted for the Tax Reform Act of 1986, which most present lauded as a bipartisan model. The bill broadened the tax base by adding taxpayers, lowered the top individual rate from 50 to 28 percent, and closed loopholes.
There is tension among Nelson’s various prescriptions for tax policy. At the hearing he advocated reducing top tax rates; yet he and most Democrats voted weeks later for the failed American Jobs Act, which would have immediately taxed millionaires another 5.6 percent. He and Democrats also voted December 1 and December 8 to fund an extension of the payroll tax cut with, respectively, 3.25- and 1.9-percent surtaxes on millionaires. Both bills failed. President Obama promised December 13 to veto a Republican alternative that funds the tax cut by trimming spending. Democrats eventually abandoned the surtax, however, after Republicans stood firm against it.
If Nelson seeks to reprise ’86 reforms, he opposes his own party. Shortly before the 2010 elections, many Democrats vilified Republicans and supported repealing the Bush tax cuts for top earners only, while a complete repeal would have broadened the tax base as in ’86.
Although the subcommittee sent its findings to the Budget Control Act’s supercommittee, Democrat and Republican members could not agree on tax reform or assigned cuts.
Engler and Taylor recommended revenue-neutral reform by adding taxpayers while lowering rates. Feldstein and Greenspan want to alleviate debt and deficit with revenue from new taxpayers. Greenspan stressed that “all of the Bush tax cuts” should lapse, and Feldstein panned Obama’s plan to fund new government programs by discontinuing deductions for the upper classes.
Greenspan was particularly troubled by looming entitlements and favored Rep. Paul Ryan’s, R-Wis., budget, though he thought it politically impossible.
Taylor proposed slashing spending and lowering rates as a plan to stimulate the economy.
Nelson scolded him, “At the same time you’ve got to have a tax code that people consider to be fair.” He shifted in his seat, heaved, and looked a bit agitated.
Obama and Democrats routinely exhort the well-off to “pay their fair share,” never specifying a rate that would satisfy this obligation for good. However, Feldstein noted that even the middle class pays a marginal rate of almost 50 percent under federal, state, and payroll taxes.
Nelson, Greenspan, Engler, and Ranking Member Sen. Mike Crapo, R-Idaho, supported restraints on Congress’ power to reverse future reforms. After all, Greenspan said, the reforms presently sought were achieved in 1986, but “almost immediately we began to erode that.”
Since then, Nelson said, Congress has added 158 tax expenditures.
All conceded that the U.S. must lower its corporate tax rates to compete for internationally mobile capital. The top U.S. rate is 35 percent, versus an average among developed nations of 25 percent. Most witnesses favored adopting a territorial system, used by peer nations, which generally taxes only income earned within domestic borders.
No such competition exists for individuals, who are less internationally mobile. Accordingly, Kleinbard suggested not decreasing personal rates, but eliminating deductions to make the code more progressive and increase revenue. However, Nelson, subcommittee member Sen. Ron Wyden, D-Ore., Feldstein and Taylor encouraged lowering marginal rates.
Ray Carlile, head of the O’Brien Tea Party, favors the Fair Tax and decreased government spending. “There’s plenty of money coming in,” and the tax code is already “far too progressive.”
Carlile doubts that Nelson will move the tax code in a helpful direction, explaining, “I think Bill Nelson does whatever Harry Reid tells him to do.”
Nelson’s office ignored a request for comment.
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Sen. Nelson: (202) 224-5274
Zayida Baker covers Sen. Bill Nelson and Rep. Steve Southerland for Tea Party Patriots’ Government Accountability Project. She can be reached at firstname.lastname@example.org.