Great Analysis on the Deficit Commission

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Read Howard Gleckward at TaxVox. If you want to understand what the deficit commission is doing on taxes, print and clip this:

They are proposing a 1986-like reform aimed at broadening the tax base and dramatically lowering rates. It probably disappoints some by eschewing hot-button ideas such as a full-blown consumption tax or a broad-based energy tax (although it would raise gas taxes).

Yes, it disappoints me in both cases. But I wasn't exactly holding my breath for a bipartisan deal to tax carbon. Indeed, putting a liberal idea like that in the report could jeopardize the entire strategy -- if the strategy isn't inherently jeopardized, already.

Here's why the plan should piss off some conservatives: more revenue, higher investment taxes, fewer tax subsidies that tend to benefit the rich...

However, the plan will be plenty controversial. To start, it would raise about $750 billion in new revenues over 10 years and would tax capital gains and dividends as ordinary income. Either idea is enough to give conservatives apoplexy. Combined...I don't even want to think about it. But Bowles and Simpson don't stop there. They'd also curb a wide range of tax subsidies including the mortgage interest deduction and the exclusion for employee-sponsored health insurance.

Here's how it cuts tax rates:

Bowles and Simpson suggest three, um, roadmaps for getting there. One is the tax reform plan offered earlier this year by senators Ron Wyden (D-OR) and Judd Gregg (R-NH). Their proposal would reduce rates to 15, 25, and 35 percent, while repealing some tax expenditures and limiting others. They'd also eliminate some business subsidies while cutting the corporate rate from 35 percent to 26 percent. A second option would cap the benefit of all individual and business tax subsidies at about 85 percent if reform is not enacted by 2013.

Here's where liberals are angry:

But my favorite idea is zero-based tax reform. Start by eliminating all tax expenditures and sharply lowering rates to 8, 14, and 23 percent. Then, force Congress to raise rates should it choose to restore specific targeted tax subsidies. This strategy, in some respects, echoes the experience of the 1986 tax reform.

And here's why it might all be for naught:

To be candid, this proposal is so provocative it almost seems as if Bowles and Simpson realize they have no chance of building consensus on their own commission.

Read the rest at TaxVox.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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