Dems may revive PEP and Pease tax r...

Dems may revive PEP and Pease tax rules

Posted in the Minneapolis Forum

Bob Schmahl

Saint Paul, MN

#1 Dec 4, 2012
Tax rate increases aren’t the only way in which Democrats are aiming to collect more tax dollars from the rich — they’re also looking to resurrect a dormant pair of oddly named laws that targeted the wealthy for decades.

Some call them gimmicks, some call them a step toward a more progressive tax system — and now Democrats want to use them to solve $12 billion worth of the looming fiscal cliff.

Known as PEP and Pease, they’re a little bit like the original “Buffett rule.”

The Personal Exemption Phase-out, or PEP, and the “Pease” deduction cap — named for the late Rep. Don Pease (D-Ohio)— were introduced in the 1990s to try to help balance the budget by getting the rich to chip in more. PEP reduced the value of exemptions for high-income earners by as much as 2 percent for every $2,500 earned over a set amount. Pease limited itemized deductions for the wealthy.

The two provisions were a persistent thorn in the side of doctors, lawyers and upper middle-class families of all stripes until they were gradually put out to pasture as part of the 2001 Bush-era tax cuts.

But Democratic budget and tax writers, and President Barack Obama, want to bring them back. And they’re betting that the scramble to avoid the fiscal cliff will make it easier to bring the complicated tax provisions back into the picture.

“They will be part of the discussion,” said Senate Finance Committee Chairman Max Baucus (D-Mont).“I think they should be on the table, and we’ll have to figure out the degree to which they’re part of the solution.”

Democrats have reason to be optimistic. PEP and Pease have flown below the radar for most of the year because, unlike other proposals, they don’t raise tax rates on paper. Instead, the deduction cap and cuts to exemptions, in effect, quietly drive up the marginal rates wealthy people pay.

Obama has proposed gradually reinstating both PEP and Pease for single people earning more than $200,000 and married couples earning more than $250,000. The process would begin in 2013, when the two are otherwise scheduled to come roaring back into effect at full force.

Read more: http://www.politico.com/story/2012/12/dems-ma...

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