“Today’s testimony issues a warning for those who propose to eliminate all tax expenditures or equate them with special interest ‘loopholes,’ ” said Rep. Sander M. Levin (Mich.), the senior Democrat on the panel. Provisions for retirement savings are “not a loophole,” Levin said, adding later: “This is a vivid example of why it’s reckless to say you’re going to get to a certain tax rate without saying how you’re going to get there.”
Camp fired back at his Democratic critics, saying, “I don’t think anyone is proposing to eliminate” incentives for retirement savings. Later, he told reporters that the Republican tax plan would not require wiping out every break on the books.
The challenge tax reform
Sen. Harry Reid spoke on the Senate floor before the chamber voted down President Obama's "Buffett rule."
“We do not have to eliminate all expenditures to get to 25 percent,” he said.
Still, a growing body of research suggests that many, if not most, tax breaks would have to undergo surgery for Republicans to meet their target for lower tax rates.
In a forthcoming report, researchers at the Brookings Institution’s Hamilton Project found that lawmakers would have to get rid of all but about $200 billion a year in tax breaks — roughly four-fifths of their value — to reduce the top rate to 25 percent.
And few of the largest preferences would be easy to eliminate, according to researchers at Hamilton and elsewhere, because they benefit huge numbers of taxpayers at all income levels. The single largest break, for example — the tax-free treatment of employer-provided health care — increases after-tax income by 2.5 percent to 3 percent for families earning $19,000 to $243,000 a year.
“One thing that’s pretty clear: Individual income tax expenditures hit a pretty broad swath of people in the middle of the income distribution,” said Adam Looney, policy director for the Hamilton Project.
Tax preferences for retirement savings tend to provide bigger benefits to wealthier taxpayers, who not only are able to save more but also receive a more valuable tax break because they pay higher rates. Still, about 70 percent of workers earning $30,000 to $50,000 a year also benefit from the provisions, Judy Miller, director of retirement policy at the American Society of Pension Professionals and Actuaries, said in testimony Tuesday.
At a time when many Americans are anxious about retirement, Randolf Hardock, testifying for the American Benefits Council, said that “reducing retirement incentives to pay for other initiatives would be counterproductive.”