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Outdated Tax Code Holding Back Economy, Toomey Says

U.S. Sen. Pat Toomey says it is time to rebuild the outdated federal tax code

By Melissa Daniels | PA Independent

HARRISBURG — It’s been more than 25 years since the federal government took a long hard look at the tax code, and Pennsylvania’s Sen. Pat Toomey says it’s time to rebuild it from scratch.

He said 1986 was “the last time we looked at really, really making improvements to our tax code, and in the meantime it’s been littered with all kinds of debris that Congress has thrown in it.

Toomey spoke to members of the Pennsylvania Press Club in Harrisburg recently, taking questions on multiple topics, from the election to the economy.

He didn’t shy away from lending his support to GOP counterparts Gov. Mitt Romney and Senate hopeful Tom Smith. But Toomey, a former president of tax-reform interest group Club For Growth and a fiscally conservative member of the debt-reduction “supercommittee,” highlighted reform to the federal tax code several times while discussing impending congressional decisions.

Reforming the tax code would lead to economic growth and generate government revenue, Toomey said. An update should leave no exemption or deduction off the table, Toomey said, with everything up for discussion.

“We have a tax code that is inhibiting economic growth, because of its complexity, because of its unfairness, because of high marginal rates, so reducing some of that underbrush would allow us to lower marginal rates without losing revenue,” he said.

Going hand-in-hand with tax reform, the main priority of the next Congress will be getting the country on a sustainable fiscal path, he said.

Congress could take up those issues in a lame-duck session even before new members are sworn in. More than $500 billion in tax increases on businesses and individuals could hit with the so-called fiscal cliff. That includes expiration of the Bush-era tax cuts and the payroll tax exemption, both set for January 2013, alongside nearly $110 billion in federal spending cuts.

It’s the tax increases, not the spending cuts, that will be the “bigger economic problem” of the fiscal cliff, Toomey said.

That includes nearly tripling taxes on dividend income, increases in capital gains taxes and marginal tax increases on “everyone who pays taxes,” Toomey said.

Toomey has indicated the administration’s plan to allow the Bush tax cuts to expire would hurt Pennsylvania’s manufacturing sector. But on the payroll tax, which helps fund Social Security, he was less concrete.

“The Social Security program is going to need some help because it’s not sustainable in its current form,” Toomey said. “If we permanently take away a whole big portion of its dedicated revenue stream away, then we got a real serious problem, so that can’t go on indefinitely. I think for now it should be discussed in the context of income tax reform.”

The expiration on the payroll tax cut will cost the average American worker an average of $1,000 a year, according to federal estimates, with the tax going from 4.2 percent back up to 6.2 percent, where it was in 2010.

What happens with the fiscal cliff depends on what happens with the election, Toomey said.

In the event of a win by Mitt Romney, in which Republicans also take control of the Senate, there wouldn’t be the same tax increases, Toomey says. What happens in the case of a status quo election will depend in part on President Obama’s decisions, he said.

Toomey said he believes Romney will win the election, and discounted the concept that the Republican has written off Pennsylvania.

The Romney campaign has had work to do in other states with early voting, and in larger ones such as Florida, Toomey said.

“I wouldn’t be at all surprised if we see substantial resources spent in Pennsylvania before this is over,” he said. “There’s still two weeks to go and a lot of undecided voters to make up their minds in this final stretch.”

Click here for video of Toomey’s comments to the Pennsylvania Press Club

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