When President Ronald Reagan and House Speaker "Tip" O’Neill (D) of Massachusetts achieved tax reform, which many in Washington have taken as a blueprint for current tax negotiations, the outcome was to cut top rates and shield the middle class but ignore the deficit, said Schumer, who not only voted for the measure but whipped his then-House colleagues to favor it as well.
Today, Schumer said, reforms can, at most, achieve two of the three stated goals, especially when taking into account which income groups actually benefit from preferences in the tax code.
With US debt more than doubled as a percentage of gross domestic product (GDP) compared with the mid-1980s, it is impossible to leave deficit reduction out of the picture, he said.
Likewise, he continued, statistics showing yawning growth in income inequality over the past several decades signal a need to protect middle-class Americans.
And that leaves reducing the highest tax rates out in the cold.
So how would Schumer obtain his starting point of $1.5 trillion in higher government revenues over the next decade?
First, some tax expenditures that don’t benefit middle-class Americans will be cut. Next, Schumer said the Bush tax cuts for annual incomes over $250,000 for families (currently taxed at 35 percent) should be “somewhere” near their levels during President Bill Clinton’s day (when they were 39.6 percent). Last, Schumer said the disparity between tax rates for earned income and investment income (currently taxed at 15 percent) should be narrowed.
Republicans, including presidential nominee Mitt Romney, have long sought a “revenue neutral” tax reform plan that lowers rates and eliminates deductions but that does not increase the amount of money taken in by the federal government. So why would they sign on for Schumer’s plan?