On December 1, 2010 the National Commission on Fiscal Responsibility and Reform, a bipartisan commission charged with developing recommendations for dealing with the growing federal budget deficit, issued a report dramatically entitled, “The Moment of Truth.” Although the report did not achieve the required number of votes from commission members to become an official recommendation of the Commission, it nevertheless garnered a good deal of attention.

The report sets forth a plan to achieve $4 trillion in deficit reduction through 2020 through:

The tax reform plan proposes to eliminate all individual tax expenditures except for “a small number of simpler, more targeted provisions that promote work, home ownership, health care, charity, and savings.” Tax rates could be as low as 8%, 14%, and 23%, but would increase as tax expenditures are added back.

On the business side, the plan would set a single corporate rate between 23% and 29%, eliminate all tax expenditures for businesses, and establish a territorial tax system under which income earned by foreign subsidiaries and branch operations (e.g., a U.S. subsidiary of a foreign company) is exempt from the domestic corporate income tax. The report states that there are “more than 75” business tax expenditures but does not specify what they are, other than the domestic production deduction, LIFO accounting, and the general business credits. It is silent on the taxation of passthrough entities.

A “failsafe” mechanism would begin to automatically reduce tax expenditures if Congress did not pass legislation meeting specific revenue targets by 2013.

Changes that this plan will be enacted in the 112th Congress are very low. However, its provisions will contribute to the ongoing discussion on tax reform.

Click here to see the Commission report, “The Moment of Truth.”