A bi-partisan deficit reduction commission appointed by President Obama said in early November that Congress should consider eliminating all special tax incentives. The move would bring in another $1.1 trillion in tax revenue, the commission said, and would allow the corporate income tax rate to be reduced to 26% and the maximum individual income tax rate to 23% if $80 billion were applied to deficit reduction and the rest were used to cut tax rates.

The commission offered two fallback options. The first would also allow the corporate income tax rate to drop to 26%, but require eliminating fewer corporate tax incentives. Still on the list to scale back or eliminate would be “depreciation rules,” energy tax preferences for the oil and gas industry, a domestic manufacturing deduction that rewards US companies for manufacturing at home and use of the LIFO or last-in-first-out method of accounting. The fallback option also includes unspecified international tax reforms, but the US would move to a territorial system of taxing US companies with operations in other countries. A territorial system means the US would only tax income that is considered to have had its source in United States.

Alternatively, the commission said, the tax committees in Congress should set a deadline of December 2012 to enact comprehensive tax reform of their own choosing, but if they miss the deadline, then there would be an across-the-board “haircut” in all business tax credits. The haircut would keep increasing from year to year until there has been a comprehensive rewrite of the US tax code.

The commission is also recommending an increase of 15¢ a gallon in taxes on gasoline and switching to a different index for inflation adjustments that has tended to report lower inflation rates. Its final report with more details is not expected before the end of November.