Levin Sends Deficit Committee Seven-Part Plan to Reduce Deficit, Protect Middle Class

Thursday, September 15, 2011

WASHINGTON —Sen. Carl Levin, D-Mich., today urged members of the Joint Select Committee on Deficit Reduction to consider seven proposals to reduce the deficit by $1 trillion or more by eliminating wasteful tax loopholes and tax expenditures and restoring more fairness to the tax code.

Levin outlined his ideas in a letter to the 12-member committee. He plans to discuss them in a series of Senate floor speeches beginning today. In today’s speech, he will outline the necessity for including revenue, and not just spending cuts, to achieve real deficit reduction. Speeches in coming days will discuss his seven proposals for deficit reduction in more detail.

Levin identifies specific tax reforms he is urging the committee to adopt, including steps to target offshore tax havens, corporate and Wall Street tax loopholes and provisions that favor the wealthiest Americans over middle-class families. He will say of his proposals in his floor speech: “Each is practical and doable, each achieves real deficit reduction, and each protects the programs that defend our nation and support middle-class families without increasing the tax burden on the investments that help our economy grow.”

Several of Levin’s proposals are built on his work as chairman of the Senate Permanent Subcommittee on Investigations, which has focused on abusive tax practices.

Levin’s proposals would:

  • Combat offshore tax abuse.
  • Eliminate a loophole that forces taxpayers to subsidize lucrative stock options for corporate executives.
  • Eliminate the “carried interest” loophole that forces taxpayers to subsidize the pay of hedge fund managers.
  • Eliminate the derivatives “blended rate” loophole that promotes speculation in futures and options, favoring derivatives over long term investments that boost economic growth.
  • Replace the wasteful and inefficient system of paper tax lien filings the IRS now uses with an electronic system accessible to the public at no cost.
  • Restore Clinton-era income tax rates for incomes of $250,000 or more.
  • Restore Reagan-era tax rates on capital gains.

Restoring revenue is essential, according to Levin, because focusing solely on spending cuts will lead to draconian reductions in defense, health, education, transportation, and other programs vital to our economic recovery, security and middle class families, but still fail to achieve real deficit reduction. In contrast Levin’s proposals could achieve $1 trillion in deficit reduction over the next 10 years while protecting those vital programs.

“Real deficit reduction means revenues plus spending cuts. Those resisting additional revenues need to do the math,” Levin said.

The full text of Levin’s letter to the Joint Select Committee is below and available here. [PDF]. Text and video of his floor speeches, beginning today, will be available at his website, levin.senate.gov.

Text of letter:

September 15, 2011

Dear Members of the Joint Select Committee on Deficit Reduction:

As you work to construct a proposal to reduce the federal budget deficit and ensure long-term fiscal stability for our government, I urge you to eliminate wasteful tax expenditures and loopholes and restore more balance to the tax code. These measures would not only reduce the deficit, but also render the federal tax system more fair to the millions of honest Americans who pay their taxes.

Here are seven tax reforms that could together raise over one trillion dollars to reduce our federal deficits.

(1) Target Offshore Tax Abuses. The Stop Tax Haven Abuse Act (S.1346) would combat offshore tax abuses. It contains more than a dozen provisions to shut down offshore tax loopholes and expose offshore tax cheats, including measures to penalize offshore financial institutions and jurisdictions that impede U.S. tax enforcement; stiffen penalties on aiders and abettors of tax evasion; shift the burden of proof establishing who controls an offshore entity; stop companies managed and controlled in the United States from claiming foreign status; treat U.S. deposits and investments by offshore subsidiaries of U.S. parent corporations as taxable repatriated income; and treat credit default swap payments made from the United States to offshore recipients as taxable U.S. source income.

(2) End the Corporate Stock Option Loophole. The Ending Excessive Corporate Deductions for Stock Options Act (S.1375) would eliminate a corporate loophole that currently gives special tax treatment to corporations that pay their executives with stock options. Stock options are the only type of compensation which, due to a special method for calculating the tax deduction, often allows corporations to deduct more than the compensation expense shown in their books. The latest data available shows that, over a five-year period, from 2005 to 2009, corporate stock option tax deductions as a whole exceeded corporate stock option book expenses by $12 to $61 billion each year, forcing ordinary taxpayers to subsidize tens of billions of dollars in excessive executive pay tax deductions. Closing this loophole would end this unfair tax subsidy of corporate executive compensation.

(3) End the Carried Interest Loophole. Under current law, hedge fund and private equity fund managers treat certain income received from managing investments as “carried interest” taxable at the lower, long-term capital gains rate, instead of ordinary income tax rates. That income is not, however, a return on a capital investment made by the fund managers with their own money, but is instead compensation for work performed for other investors. Closing this loophole and treating carried interest as ordinary income would end an unfair taxpayer subsidy of this Wall Street income.

(4) End the Derivatives Blended Rate Loophole. Under current law, profits from some derivative trades are taxed at a “blended rate” comprised of part capital gains and part ordinary income, even in the case of derivatives held for minutes. This special tax treatment, enacted in 1981, favors derivatives like futures over stocks, and encourages bets on derivatives over direct capital investments that are key to economic growth. Closing this tax loophole would put a stop to that market distortion.

(5) Restore Reagan-Era Capital Gains Rates. In recent years, tax rates have been repeatedly lowered for capital gains derived from stock, bonds, and derivative transactions compared to income derived from the salaried work performed by most Americans. Despite the fact that capital gains rates currently range between 0% and 15%, our economy has little to show for it in the way of increased investment or other economic benefits. At the same time, these lower rates have greatly increased the deficit. While long-term investments should receive some degree of favorable treatment, restoring capital gains rates to Reagan-era levels in line with ordinary income rates – as several bipartisan deficit reduction proposals have suggested – would not only make the federal tax system more fair, but also end a tax expenditure costing hundreds of billions of dollars over ten years.

(6) Restore Upper Income Tax Brackets. Today, the wealthiest one percent of Americans take home 24 percent of all U.S. income, the highest percentage since the Great Depression. Yet, just a few decades ago, that number was below 10 percent. Rather than have their share of the tax burden go up accordingly, the wealthiest few have had their tax rates lowered several times. Our economy has not grown as a result of this special treatment, but our deficit has. Restoring ordinary income rates on those earning over $250,000 would reduce our deficit by hundreds of billions of dollars over the next 10 years while restoring balance to the tax code.

(7) Eliminate Paper Tax Liens. The Tax Lien Simplification Act (S.1390) would create an electronic federal tax lien registry, available to the public at no cost, in place of the current antiquated system requiring federal tax liens to be filed on paper in 4,000 locations across the country. This simple, good government bill would save administrative costs, while expediting the removal of tax liens and freeing up an entire IRS division to tackle the collection of unpaid taxes that pose an unfair burden on honest taxpayers.

These common sense proposals, if enacted, would significantly reduce the federal deficit, while removing economic distortions from the marketplace and ending unfair tax expenditures and loopholes that disadvantage average taxpayers. Thank you for your consideration of these proposals.

Sincerely,

Carl Levin