House GOP Proposes Tax Bracket Consolidation

House Budget Committee chairman Paul Ryan, R-Wisc., has introduced a Republican-backed alternative to the Obama administration’s fiscal 2013 budget, including a proposal to consolidating the current six individual income tax brackets into just two brackets of 10 and 25 percent.

The Ryan budget plan builds on the plan he introduced last year, in a document entitled “The Path to Prosperity,” which set the maximum individual and corporate tax rates at 25 percent, down from a top rate of 35 percent (see House Republicans Aim to Lower Top Tax Rate to 25%). The Republican-led House passed Ryan’s budget plan last year, but it went nowhere in the Democratic-controlled Senate.

The fiscal 2013 version of “The Path to Prosperity” also proposes to repeal the alternative minimum tax, which currently threatens 31 million middle-class families with higher taxes, and to shift from a “worldwide” to a “territorial” tax system where corporations are only taxed on profits earned in the U.S.

Ryan said his budget would close “special interest tax loopholes,” although these weren’t specified.

“We’ve proposed tax reform that’s common sense—a plan that lowers tax rates and closes special interest loopholes so our tax code is fairer, simpler, and more competitive,” said Ryan. “That’s how we’ll create a healthier environment for businesses to hire and expand.”

Ryan’s budget plan also would repeal President Obama’s signature health care reform law. His budget would also change Medicare into a “premium support” program in which future retirees would choose from a selection of health coverage plans. Ryan has also proposed setting up a trigger that require work on Social Security reforms when the balance in the trust fund approaches a 75-year deficit.

The tax reforms build on efforts led by House Ways and Means Committee chairman Dave Camp, R-Mich., who has also backed a move toward a “territorial” tax system. The plan also incorporates the work of the Ways and Means Committee, which has held hearings on tax reform and on which Ryan is a member. In a letter to Ryan from Camp and other Republican members of the committee, they also call for “broadening the tax base.”

“Building off of the commitment Republicans made to lower tax rates in last year’s budget resolution, this proposal adopts the Ways and Means Committee recommendation to simplify taxes for American families and level the playing field for American employers and workers competing around the globe,” said Camp in a statement. “Where the President’s plan increases taxes and takes more money out of the economy, the Republican plan reforms our outdated and burdensome tax code to unleash innovation and investment.”

However, at least one Democrat on the committee criticized the plan. “The Republican budget proposal on taxes is a dangerous dodge, with only one thing clear: It would end up showering benefits on the very wealthy and soaking the middle class,” said ranking member Sander Levin, D-Mich., in a statement. “The only way to cut the top tax rate to 25 percent is to essentially end the tax deductions for health care coverage, mortgage interest expenses and charitable contributions, even as Republicans would keep the temporary lower rates for capital gains and dividends that mainly benefit very high-income taxpayers.”