House Ways and Means Committee Chairman Brady's tax reform proposal deserves kudos for lowering the federal corporate income tax rate with significant base-broadening and base erosion protections. As the chart above shows, two-thirds of the static revenue loss is from business income tax provisions.
Of course with any major tax reform proposal, many issues are important and need extensive debate. The $1.5 trillion of additional deficit-financed tax cuts will only be partially offset by potential future economic growth, particularly when the US economy is at or near full employment and with large projected future deficits from the baby-boomers' "entitlements".
To fit under the budget reconciliation limits of $1.5 trillion, typical budget gimmicks are included, such as delayed elimination of the estate tax, temporary capital expensing provisions, temporary extra personal tax credits, and one-time revenue from recapture of previously untaxed foreign source income.
Important issues are raised, such as the extent of government (tax) subsidies for high-priced residential housing, and the treatment of non-corporate business income. Other tax issues are missing from the plan, such as potential limitations on excessive retirement plan savings and employer provided medical insurance expenditure. The role of refundable tax credits and the payroll tax as part of the overall US federal tax system is largely absent.
Nonetheless, the Brady proposal is a good start to meaningful tax reform which would lower marginal tax rates and broaden the income tax base in ways to reduce economic distortions, promote economic growth, and treat similarly situated people more fairly. Hopefully further improvements, particularly in terms of reduced deficits and fairness, will result during the deliberative process.
The table below shows the major elements of the Brady plan based on the Joint Committee on Taxation's revenue estimates, rearranged by the author.