"Lower the rate, broaden the base"
Generally when you hear calls for tax reforms, they involve lowering tax rates and broadening the tax base. That's the type of tax reform that was done to some extent by Reagan, that was called for by the bipartisan Simpson Bowles commission, and that Romney talks about. But what exactly does that mean?
Well, here's an example. It's a family of four with an adjusted gross income of about $93,069 in 2011, about the average - mean, not median - for married couples in the U.S.
This particular return has a federal taxable income of $54,158, and paid $4835 in federal taxes. That's at a marginal tax rate of 15%, and an average tax rate of 13%. You don't think 13% of $54,158 comes out to $4835? The difference is due to tax credits, which further narrow the tax base.
The family's Massachusetts state taxable income, in contrast, is $70,119; Massachusetts is fairly generous with deductions, but not as generous as the federal government. The Massachusetts tax paid is $3731 at at 5.3% rate - more than 3/4 of the taxes at only about a third of the marginal tax rate. The tax revenue could be increased to equal the federal tax revenue while still leaving the tax rate at only half the federal rate.
That's what it means to lower the tax rate and broaden the base. Reduce the tax rates, and remove deductions and credits to make up for it. The federal government still gets just as much revenue, and with lower marginal tax rates, people can keep more of every extra dollar earned, providing an incentive - or rather reducing the disincentive - to work hard and make more money. And with more people working harder and making more money, the economy grows as well.
Average married household income was $92,839 in 2010:
http://www.census.gov/hhes/samesex/files/ssex-tables-2010.xls
Well, here's an example. It's a family of four with an adjusted gross income of about $93,069 in 2011, about the average - mean, not median - for married couples in the U.S.
This particular return has a federal taxable income of $54,158, and paid $4835 in federal taxes. That's at a marginal tax rate of 15%, and an average tax rate of 13%. You don't think 13% of $54,158 comes out to $4835? The difference is due to tax credits, which further narrow the tax base.
The family's Massachusetts state taxable income, in contrast, is $70,119; Massachusetts is fairly generous with deductions, but not as generous as the federal government. The Massachusetts tax paid is $3731 at at 5.3% rate - more than 3/4 of the taxes at only about a third of the marginal tax rate. The tax revenue could be increased to equal the federal tax revenue while still leaving the tax rate at only half the federal rate.
That's what it means to lower the tax rate and broaden the base. Reduce the tax rates, and remove deductions and credits to make up for it. The federal government still gets just as much revenue, and with lower marginal tax rates, people can keep more of every extra dollar earned, providing an incentive - or rather reducing the disincentive - to work hard and make more money. And with more people working harder and making more money, the economy grows as well.
Average married household income was $92,839 in 2010:
http://www.census.gov/hhes/samesex/files/ssex-tables-2010.xls