Heritage Foundation Leadership for America

Making prescription drugs a Medicare entitlement could be poison for tax reform.

The costs of the $400 billion drug proposal, currently being hammered out by a Capitol Hill committee, would make proposals for a pro-growth tax system in America harder to achieve, says Heritage Foundation tax expert Daniel Mitchell in a July 25 study.

Some future tax reform ideas that would likely be scrapped include:

• Alternative minimum tax (AMT) repeal. This tax is a “Catch-22” system that forces many taxpayers to calculate their taxes twice. If this results in a higher tax liability, the taxpayer must pay more.

• Corporate tax rate reduction. America has a top corporate tax rate of 35 percent—the highest of any developed nation. This hinders the competitiveness of U.S.-based companies.

• Universal IRAs. People should not be taxed twice on income that is saved and invested, which is why individual retirement accounts should be universal.

• Ending territorial taxation. The United States taxes income earned in other nations—even though this income is already subject to foreign tax.

“Many of the reforms needed to bring the tax code closer to a simple and fair flat tax involve a reduction in tax revenue,” Mitchell writes. “This will be a daunting challenge.”

Read more of Mitchell’s study and other Medicare research at heritage.org.

For more information or to receive an e-mail version of “Medicare Maladies,” contact medicaremaladies@heritage.org or call Heritage Media Services at (202) 675-1761.