Americans would pay roughly same amount under simpler plan, group says.
Updated: 2:46 p.m. ET Oct. 18, 2005
WASHINGTON - President Bush’s tax panel on Tuesday endorsed a drastically simplified income tax system that envisions eliminating most deductions, credits, savings incentives and other tax breaks, replacing them with a few simpler benefits.
Taxpayers would pay roughly the same amount of tax under the simplified system as they do now, panel members said. But most of the confusing tax paperwork would be gone, and complex tax equations that baffle taxpayers would be simplified.
“I don’t think it’s a small move in this direction, I think it’s a huge move,” said Charles O. Rossotti, panel member and former Internal Revenue Service commissioner.
The White House made no commitment to stick to the panel’s recommendation when forwarding its tax-simplification proposal to Congress, a move Bush spokesman Scott McClellan said is not expected before next year.
“We’re going to take into account all the work that they have done and the recommendations that they are making,” McClellan said. “We share a common goal of reforming our tax code to make it simpler and fairer.”
The President’s Advisory Panel on Federal Tax Reform is tasked with making multiple recommendations for different tax methods that make income taxes a fairer, simpler and more economically productive system. Its final report is due Nov. 1.
The plan includes savings accounts for retirement and major family expenses very similar to a proposal put forward by President Bush.
The panel would shrink the number of income tax rates from six to four and put 75 percent of individuals and families in the bottom 15 percent tax bracket.
The proposal abolishes the alternative minimum tax, a levy designed to prevent the wealthy from evading taxes but which is increasingly creeping into the middle class. Individuals would not pay tax on roughly three-quarters of the capital gains on corporate stock.
However, the federal tax deduction for state and local taxes paid would disappear — a proposal immediately denounced by a Democratic senator on the Senate Finance Committee, which has jurisdiction over tax legislation. Myriad personal and family tax breaks would be replaced with one family credit. Income tests designed to keep most current tax breaks within the middle class would be eliminated, letting wealthier individuals and families benefit.
Benefits and savings accounts for retirement, health and education would be eliminated in favor of three savings accounts, all funded with taxed income that would be allowed to grow and be withdrawn tax free.
One account would let workers save for retirement through their employers. Taxpayers could also put $10,000 every year into each of two accounts, one for retirement and the other for health, education and home-buying expenses. Low income taxpayers could get a savers credit worth up to $500.
The plan incorporates two ideas discussed at the panel’s last meeting, when the commission’s nine members decided that two of the biggest and most popular tax breaks benefit the wealthy more than moderate- and low-income families. One resulting change converts the mortgage interest deduction to a credit, while also limiting the size of eligible mortgages to the area’s mortgage limit as set by the Federal Housing Administration.
It also caps unlimited deductions for health insurance that businesses provided to workers, setting the tax-free limit at $11,500 for families and $5,000 for individuals — the size of the benefit provided to members of Congress. Other fringe benefits for employees, like child care and life insurance, would be taxed.
It retains the earned income tax credit, a benefit designed to lift the working poor out of poverty, but gives workers the option of letting the IRS make that complicated calculation.
The panel also recommended a proposal blending that simpler income tax system with elements of consumption tax, promoted by some economists as the best way to spur economic growth. A key change would give businesses more investment incentives by letting them immediately write off the cost of new equipment.
“The whole economic pie would be larger,” said James Poterba, a panel member and economics professor at the Massachusetts Institute of Technology.
A few members, however, had concerns that wealthy taxpayers with a lot of investment income would benefit most from some elements, such as a 15 percent tax rate on capital gains and dividends.
Sen. Chuck Schumer, D-N.Y., a member of the Senate Finance Committee, denounced the proposal, saying, “It’s hard to conceive of something that could hurt New York more than the elimination of state and local tax deductibility. ... We will do everything in our power to defeat this pernicious proposal.”
Elizabeth Garrett, a law professor from the University of Southern California, said she wanted to examine the amount paid by taxpayers at various income levels to be “at least content that we do no worse.”
posted on October 19, 2005 09:46:55 AM new
I don't know what I think of all their proposals at this time. Haven't read enough to get a full picture of how much would really change. Yes, they will be reducing the number of forms in order to simplify tax time....BUT....will this really lower taxes for the majority of Americans? I don't know.
I do think that IF 75% of American taxpayers were paying only a 15% tax rate....that would be better than what most are paying now.
But I do wonder if this change on health insurance deductions for corporations [the caps] would hurt workers in the long run. Like by forcing more employers to either cut or eliminate these benefits to their employees.
-----
In the current issue of USA Today:
Highlights of the proposals:
•The current six income tax rates on individuals would be reduced to four. About three in four taxpayers would pay at the minimum 15% rate. The maximum rate would drop from 35% to 33%. Businesses would pay a 32% rate.
•Capital gains would be taxed at regular rates, rather than 15%, under the simplified tax system. Gains on stock sales would get a 75% exclusion; the exclusion on sales of principal residences would rise from $500,000 to $600,000.
•The current array of tax-favored savings accounts, such as 401(k)s and IRAs, would be folded into three types of accounts: "Save at Work," "Save for Retirement" and "Save for Family."
The 1040 form would be cut from 75 lines to 32, and the number of schedules and worksheets from 52 to 10. "It would be something that anybody could understand," said panel member Charles Rossotti, former head of the IRS.
I also wanted to mention that there is a huge difference between this President endorcing this proposal....and the panel's recommendations on what should be changed.
That I have read, this President has NOT backed/supported this proposal from this panel at this time.
It will be interesting to hear what other 'panels/groups' have to say about these proposals. -----------------
"Whenever the nation is under attack, from within or without, liberals side with the enemy. This is their essence." --Ann Coulter
And why the American Voters chose to RE-elect President Bush to four more years. YES!!!
[ edited by Linda_K on Oct 19, 2005 09:50 AM ]
posted on October 19, 2005 02:44:31 PM new
I would guess that the odds of this being bad for the majority of Americans are 99:1, but you neocons go ahead and support it, you've managed to support everything else that is bad for this country.
posted on October 19, 2005 02:55:24 PM new
Wrong answer....and very untrue. Totally biased opinion from one who claims he's further left than a progressive/ultra liberal - that's REAL funny to read.
"Whenever the nation is under attack, from within or without, liberals side with the enemy. This is their essence." --Ann Coulter
And why the American Voters chose to RE-elect President Bush to four more years. YES!!!
posted on October 19, 2005 02:58:52 PM new
Linda, of everyone who participates here, you are by far the most Anti-American. You calling anyone a liar is a joke. When the Republicans do anything good for this country is the day pigs fly, even neocon pigs like you Linda.
