Ongoing Debate Centers On Revising Tax Code
MARY LOUISE KELLY, host:
NPR's business news starts with tax day.
(Soundbite of music)
KELLY: Today is the day taxes are due. Millions of Americans are still finishing up their returns, dropping them in mailboxes or sending them off electronically. Were going to mark the day by taking a look at the debate over the tax code.
To find out where things are headed, we called David Wessel. Hes economics editor of The Wall Street Journal and our frequent guest here on MORNING EDITION.
David, welcome to back.
Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Thank you.
KELLY: So lets start with the bottom line. Given everything were hearing about the size of the deficit and all this pressure to raise revenue is it safe to assume our taxes are going to go up?
Mr. WESSEL: Almost certainly, I think. All American workers today are enjoying a break on their payroll taxes, the ones that finance Social Security and Medicare. Congress and the president agreed in December to cut those taxes to give consumer spending a little more help and that tax cut expires at the end of the year, unless it's renewed, which means our paychecks will be a little smaller in 2012.
You know, that payroll tax is important. It's about 45 percent of all the taxes that individuals pay. Now the income taxes, the ones that are due today, well, the Bush tax cuts expire at the end of 2012, and unless Congress does something, taxes will go up then too.
KELLY: And, of course, a big partisan debate over whether to extend those tax cuts or whether they should go up again, those income taxes.
Mr. WESSEL: Thats right. Republicans generally want to extend the all; the president wants to extend them, but only for those families making less than 250,000 a year. That would bring in about $700 billion over the next 10 years by raising income taxes on the top by back to where they were before President Bush took office.
KELLY: David, both Republicans and Democrats talking a lot this season about tax reform, trying to tighten some of these loopholes in the tax code. What's your prediction? How likely is it we'll actually see some action on that?
Mr. WESSEL: Well, we'll actually definitely see a lot of talk about tax reform. Who could be against reform? Reform sounds good. But basically what's happened here is that Washington has realized that there are a lot of deductions and credits and exemptions and loopholes in the tax code. And if you did away with some of them or curtailed them somewhat, there would to be more money coming in.
Now Republicans think this is a good idea but they generally use that money to lower tax rates and collect the same amount of money. The president now says he wants to raise $1 trillion over the next decade or so on top of his other proposed tax increases to reduce the deficit by getting rid of or curtailing some of what he's now called spending through the tax code or tax expenditures.
KELLY: Well, are there specific deductions that are being targeted? Any of the big ones, mortgage interest that were all able to deduct off our home loan payments, for example?
Mr. WESSEL: Well, you know, it's funny. They're all in favor of reform and they're all interested in getting rid of some deductions and credits, and they all seem to be very quiet about what specifically they need, whether it's Paul Ryan in the House or President Obama and his recent budget proposal.
You're right. The big bucks are in some of the most popular deductions, by deducting your mortgage interest or, you know, property taxes or excluding from your taxable income, the value of the health insurance premiums that your employers pay, the charitable deductions, each has its own reason for being, each has a constituency. One option I think is not to target any particular one, but limit the amount of deductions and credits you can take.
KELLY: And just quickly, David, we've been talking here about individual taxes. What is likely to happen with taxes on businesses?
Mr. WESSEL: Ah. Well, corporations today pay relatively small slice of all federal tax revenue. About 12 to 13 percent in ordinary times are paid by corporations. The top tax rate is 35 percent. But they have so many deductions and credits that pay a lot less. So there's a lot of talk about corporate tax reform but very little talk about increasing the share of taxes paid by companies, because people are worried that that would make the economy less efficient and hurt us in the long run.
KELLY: Okay. Thanks, David.
Mr. WESSEL: Youre welcome.
KELLY: Thats David Wessel of The Wall Street Journal.
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