Bush Tax Cuts Should be Continued Temporarily, Professor Michael Graetz Tells D.C. Panel

Graetz Warns a Permanent Extension Creates a "False Sense of Expectation" about How Much Money the Government Needs


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New York, Oct. 6, 2010—The tax cuts Congress passed during the last Bush administration should be extended no more than two years, while a new, fairer tax system is crafted, Columbia Law School Professor Michael Graetz told a Washington panel.
Graetz, the Isidor and Seville Sulzbacher Professor of Law, has attracted wide attention for his proposal to impose a value-added tax (VAT), which would effectively act as a national sales tax. He says a VAT would make the nation less reliant on income-tax collections and allow the government to rid itself of tax breaks and credits to special interests.
“I think it creates a false sense of expectation among the American people about the level of taxation this country can have and produce adequate revenue,” Graetz said Wednesday about the Bush tax cuts, which are set to expire at the end of the year.
Graetz was part of a tax reform panel on Capitol Hill sponsored by the non-profit group Tax Analysts. He said a brief extension would give politicians time to “level with the American public” about the nation’s dire financial health. One way to do that is to “extend these (cuts) for a couple of years and say we’ve got a serious fiscal problem … and you have to talk about spending as well as taxes.”
Graetz, one of the nation’s leading experts on tax policy, also spoke about his VAT plan, which is outlined in his book 100 Million Unnecessary Returns. Hesaid a VAT at a rate of 10 to 15 percent could finance an income-tax exemption of $100,000 of family income and substantially lower rates above that amount. That would eliminate 100 million families—or about 90 percent of filers from income tax rolls.
Under Graetz’s plan, corporate taxes, now the highest in the industrialized world, would be cut to 15 to 20 percent, which he said would encourage more domestic and foreign investment and increase employment.
To help pay for this, Graetz favors curtailing the myriad of corporate tax shelters. He would also replace the earned-income tax credit, and provide low- and middle-income families with payroll tax reductions and debit cards to offer relief from the VAT burden.
“I understand the political problems of the plan that I have offered,” Graetz said. “But I think it has a lot in it for the American economy. It would give us an income tax that the American public could live with.”
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To listen to the webcast of the panel, click here (Graetz's remarks begin at about 1:13 of the recording).