Debt Reduction Task Force Recommends Eliminating CU Tax Exemption

The Washington, D.C.-based Bipartisan Policy Center's Debt Reduction Task Force last week released a 140-page report outlining a plan to cut $6 trillion from the federal debt by 2020. The task force, co-chaired by former Sen. Peter Domenici (R-N.M.) and Alice Rivlin, former vice chair of the Federal Reserve Board, recommended eliminating a long laundry list of tax expenditures -- including the credit union tax exemption.

The plan, among other things, also includes a one-year payroll tax holiday; a 6.5 percent national sales tax to lower the national debt; a five-year freeze on defense spending; a four-year freeze on nondefense domestic spending; and reductions in farm program spending. The corporate tax rate would be lowered to 27 percent, and individual taxes would have only two rates -- 15 percent and 27 percent.

In recommending either eliminating or scaling back almost all tax expenditures, the Task Force stated that "[w]hile some tax expenditures promote important social and economic goals, others have little economic justification."

The Task Force further states:

"Many tax expenditures,moreover, subsidize activities that generate no clear benefits beyond the rewards that private producers would receive in free markets. These tax expenditures misallocate resources by promoting over-investment in tax-favored industries and over-consumption of tax-favored goods and services. Tax expenditures also raise costs of compliance and administration and contribute to the high current levels of non-compliance. Eliminating almost all tax expenditures allows the Task Force plan to raise sufficient revenues with much lower individual and corporate tax rates than in current law."

To view a list of tax expenditures the Task Force recommended retaining, go to Appendix B on page 130 of the report.