The Tax Reduction and Reform Act of 2007: An Overview (CRS Report for Congress)
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| Release Date |
Revised June 20, 2008 |
| Report Number |
RL34249 |
| Report Type |
Report |
| Authors |
Jane G. Gravelle, Government and Finance Division |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
On October 25, 2007, Chairman Charles B. Rangel of the House Ways and Means Committee announced his tax revision proposal, H.R. 3970, the Tax Reduction and Tax Reform Act of 2007. One of the objectives of the plan was to address the problem with the individual alternative minimum tax (AMT), a provision that was originally aimed at high-income taxpayers' preferences but, because it was not indexed, is increasingly reaching upper middle class taxpayers. The most significant provisions, measured by revenue effect, were a revision in 2007 and subsequent repeal of the AMT (costing $845 billion over 10 years) and an additional tax on high-income individuals (raising $832 billion).
The plan also contained other tax revisions for individuals, to produce a roughly revenue neutral overall individual tax revision. Taxes were reduced for lower-income individuals by $86 billion, including an increase in the standard deduction, an increase in the earned income tax credit for families without children, and an increase in the refundability of the child credit. Taxes were increased for higher-income individuals through a restoration of the phaseout of personal exemptions and itemized deductions and a restriction on miscellaneous itemized deductions, for a total gain of $38 billion. These general provisions resulted in tax reductions for over 95% of taxpayers, with increases in tax liability at very high income levels. The individual section also contained base broadening provisions, raising $61 billion. The most important of these were increased taxes on managers of hedge fund and other investments, who tend to have high incomes.
The proposal also extended a number of expiring tax provisions for an additional year at a cost of $21 billion.
The plan also included a corporate/business package that cut the corporate tax rate from 35% to 30.5% (costing $364 billion over 10 years) and made an increased expensing allowance for small business equipment permanent (a $21 billion cost). Offsetting these losses were revenue raisers that resulted in a small net gain of $14 billion for this portion of the plan. The major revenue raising provisions were a repeal of the domestic production activity deduction, increased taxes for multinational corporations, and changes in inventory accounting.
Overall, the bill would lose $53.8 billion over five years and $7.5 billion over 10 years; thus, over the ten-year period it is close to revenue neutral as the loss is only 3/100 of 1% of income tax revenues.
