On Tuesday, the potential downsides to reforming the tax structure in the United States became more evident in the nation's capital. For the first time, senators and representatives started to think about reducing or changing individual tax breaks offered to the nation's citizens. One of the areas where they first began was with laws related to retirement savings. Specifically, they began to look into changing tax breaks that make it easier for millions of Americans to save during their working years for their retirements.
Programs for saving such as individual retirement accounts or IRAs, 401 (k) plans, employer pension tax breaks, and similar methods for saving add up to some of the largest opportunities for refunds or lower taxes in the existing tax code. It is estimated that more than $200 billion each year could be added to the national revenue if Washington were willing to get rid of these tax code breaks.
In total, there are at least 200 applicable tax deductions, credits, savings, and other breaks that result in $1.1 trillion less payment to the United States Treasury each year. Elected officials in the Democratic and Republican political parties such as Mitt Romney and President Obama have stated that some of the money currently given to the public through these tax breaks should be given back to the federal government as a means to reduce deficits in the federal budget. Officials have also proposed that some of the money should be used to make lower tax rates more feasible.
It was not until very recently that either political party became willing to talk openly about which of the several tax breaks favored by the public could potentially be removed from the tax code. However, this reluctance has begun to change in recent weeks as policy analysts and elected officials have begun to seriously think about how they plan to completely redo the tax code. It is possible that the changes being discussed could be put into place as early as next year.
This past Tuesday, Dave Camp, chairman of the House committee on Means and Ways, proposed a hearing on retirement accounts that benefited from tax breaks. The Michigan Republican representative stated that he planned on starting to frame the debate so the public and Congress would be ready for discussion of reforming current tax laws.
Representative Camp's aides stated that he also aims to launch an investigation that will be the first of its kind. The investigation would look into close to $30 billion in tax breaks that had expired for corporations and private citizens. These tax breaks are frequently extended by Congress as a matter of course, and Camp has stated that he intends to find out why. The idea of investigating the merits of these tax break extensions has also become more popular in recent weeks in the Senate.
This past weekend, Mitt Romney made a number of statements on the campaign trail that suggested he was interested in reforming the current tax code. He made these statements while hosting a private fundraising event in the swing state of Florida. Speaking to his donors, he told them of his plans of saving money that would lead to a reduction in the amount of the federal deficit.
Romney told his donors that he would either limit or completely get rid of the ability of second home owners to deduct the interest they paid toward the mortgages of their second homes. He also implied he would place limits on how many deductions many Americans could claim on their property and state income taxes. Romney's statements were later backtracked by aides who stated that he was simply sharing ideas and not providing his plans for saving money on tax breaks.