http://money.cnn.com/2005/11/01/pf/taxes/tax_proposals/index.htm?cnn=yes

Quote :

"Proposal: Kill AMT, some breaks and fat President Bush's tax-reform panel submit two proposals that would alter the federal tax code. November 1, 2005: 12:07 PM EST By Jeanne Sahadi, CNN/Money senior writer NEW YORK (CNN/Money) - The president's tax-reform advisory panel has submitted two final proposals Tuesday morning to the Treasury Department, both of which offer significant changes to the tax breaks people have come to expect -- as well as to the complexity and costs of filing that many have come to detest. The question of who wins and who loses is always a big question whenever any changes to the tax code are proposed. Speaking on Bloomberg TV Tuesday morning, panel chairman Connie Mack, a former senator from Florida, urged taxpayers to "look at the entire package and not pick one portion of it to determine if it's good for them." In the aggregate, taxpayers should be paying the same amount as they do under the current system, but on an individual basis you may end up paying more in some areas and less in others. The panel's mission was not to reduce taxes, but rather to make the tax code simpler, fairer and more growth-oriented. Upon receiving the panel's report at a press conference Tuesday morning, Treasury Secretary John Snow said, "These are bold recommendations. ... They will challenge orthodoxy on tax policy." He noted that they would be "a starting place for recommendations we'll make to the president," recommendations which could come by the end of the year. If that's the case, it may be that President Bush includes some specific recommendations for tax reform in his State of the Union address early next year. But most observers, noting just how controversial all tax proposals are, don't expect anything to pass Congress in the near future. Here are some of the key changes the panel is proposing that are common to both of their proposals: Eliminate the alternative minimum tax The AMT is a parallel tax system originally intended to ensure the wealthy pay their fair share of taxes by eliminating many of the deductions and credits they get under the regular income tax system. But because the income-exemption levels have never been indexed to inflation, by 2010 the AMT threatens to catch more than 30 million taxpayers, mostly from middle-income households. The estimated cost of repealing the AMT is $1.3 trillion over 10 years. The panel was instructed to come up with proposals that are revenue-neutral, meaning they would have to produce the same revenue as expected under the current system. As a result, the panel had to take a hard look at the tax breaks offered under the current system to see where they could make up for that lost revenue, while at the same time ensuring a new tax code was fairer and more growth oriented than the current one. (For more on their mandate to make their proposals revenue-neutral, click here.) Reduce investment taxes In the panel's proposal to simplify the current income tax, dividends from domestic earnings would be tax-free as would 75 percent of the capital gains you receive. The other 25 percent of gains would be subject to your marginal (or top) tax rate. The net effect is that your capital gains would be taxed at rates between 3.75 percent for those in the lowest tax bracket to 8.25 percent for those in the highest tax bracket. (For example, if you're in the 33 percent tax bracket and receive $100 in capital gains, $75 would be tax-free and $25 would be taxed at 33 percent, or $8.25. The net tax you'd pay on the full $100 is $8.25, or 8.25 percent.) Under the existing code, dividends and long-term capital gains are taxed at 15 percent or less, but they are set to go higher after 2008. Interest on everything except tax-exempt municipal bonds would continue to be taxed at individual rates as is the case in the existing tax code. In the panel's second proposal, dividends, capital gains and interest would all be taxed at 15 percent. Alter homeowners' tax breaks The panel recommended lowering the mortgage interest cap, which is the amount of a loan on which home owners would receive a tax break for interest paid, from $1 million to the average regional housing price in the range of $227,000 to $412,000. The deduction would be converted to a credit equal to 15 percent of interest paid on mortgages up to the interest cap. A credit is a dollar-for-dollar reduction of the taxes you owe, while a deduction only reduces your taxable income by a percentage equal to your top tax rate. Generally speaking, the higher your mortgage loan and the higher your tax bracket, the more likely it is that you'll see less of a tax break than you would under the current system. (See more on how changes could affect your tax bill.) Reduce the marriage penalty All tax brackets, family credits and taxation of Social Security benefits for couples would be double those of individuals. Under the current system, some two-earner married couples filing jointly end up paying more in taxes than two single taxpayers with the same income because of the way various deductions, credits and tax brackets are structured. Reduce tax breaks on employer-provided health insurance When you work for a company, your employer typically foots a large portion of your health-insurance premiums. That money, which is not reported on your W2, is tax-free to you. The panel recommended capping the amount of tax-free money that may be used to pay for health insurance to $5,000 for single coverage or $11,500 for family coverage. Repeal the federal deduction of the state and local tax deductions Under the proposals, taxpayers would no longer be allowed to deduct the state and local taxes they pay on wage income, investment income and property. Former Senator John Breaux of Louisiana, who is the panel's vice chair, on CNBC Tuesday morning explained part of the panel's reasoning this way: "If people in California want to pay extra taxes to have their trash picked up, people in Texas shouldn't have to subsidize it." Reduce the number of tax brackets Under the panel's first proposal, which is a streamlined version of the current income tax, the number of tax brackets would be reduced from 6 to 4. They would be: 15%, 25%, 30% and 33%. Under their second proposal, which combines the income tax with a progressive consumption tax, there would be only three tax brackets: 15%, 25% and 30%. Reduce and simplify tax-advantaged savings accounts You might be forgiven for not being able to keep straight the differences between several types of IRAs, various types of 401(k)s, to say nothing of HSAs, FSAs, Coverdells and 529s. The tax-reform panel is proposing to consolidate defined-contribution plans -- e.g. 401(k)s -- into one Save at Work Account with simple rules. They also propose replacing all types of IRAs with one Save for Retirement Account that would have a $10,000 limit and would be available to all taxpayers. Currently, your income and your workplace savings options determine whether you're eligible to contribute to different types of IRAs and whether your contributions can be deductible. Education savings plans like 529s and health savings plans like flexible spending accounts (FSAs) would all be consolidated into one Save for Family Account with a $10,000 annual limit. This account, which would be available to all taxpayers, could also be used for new home and retirement savings as well. Simplify tax filing The panel proposes creating a 1040 Simple form that could fit on both sides of a 4 X 6-inch index card. The number of lines would be reduced from 75 on the current form to 32 on the proposed form. It would also reduce the number of schedules, forms and worksheets from 52 to 10. The panel also proposes creating two new credits: one for family and one for work, each of which would take the place of a multitude of credits and exemptions currently in place."

This looks really bad for middle income professionals who aren't rich (most of us who are post collegiate). First look is we lose a chunk of our mortgage interest deduction(not as bad in NC as it is in other places) and all of our state tax deduction. AMT goes away, but without most of our mortgage interest and all of our state taxes we wouldn't be hit with AMT anyway.

The winners are wealthy investors who see their investment income taxes, which are already low, drop significantly. Sure, it helps us a little, but most of our investment income is likely to be in retirement savings accounts anyway. Oh, and the plan will also increase our medical costs.

Why is it that EVERY tax change ALWAYS hoses the middle class? This isn't just a Bush thing; it goes all the way back to Reagan. It may go back further, but I wasn't a screwee any further back and wasn't paying attention.

11/1/2005 12:19:56 PM

some would say supply side economics... others would say that politicians dont want to hose their donation base

good call putting this in the lounge and not the soapbox, btw

11/1/2005 1:19:09 PM

yeah, i'm more interested in discussing the financial implications rather than the politics behind it.

Posting this in the soap box would have yielded

OMF FUCK BUSH
OMF BUSH IS GOD
...

ad naseum....

FOCUS:

There are parts of the bill that I like, such as getting rid of the marriage penalty, reducing the number of tax brackets, and the simplification processes.

Although I support a reduction in the mortgage interest cap, I think the proposed range is far too low. I think a $500,000 cap is a fair enough compromise that will help deflate some of the regional bubbles while still enabling most people to own a decent home. Although $500k will get you a huge house on a golf course in NC, that would barely get you a starter home, condo, or townhouse in most high density areas.

11/1/2005 1:28:47 PM

yeah, I can see exactly how this would have played out in the SB.

I definitely agree with you on thinking this bill wasn't very effective. I definitely lean libertarian, so when I hear the words "tax reform" my ears perk up. Unfortunately, this just doesn't do it for me. Basically, I agree with you on this

Quote :

"There are parts of the bill that I like, such as getting rid of the marriage penalty, reducing the number of tax brackets, and the simplification processes."

But I would have liked to see even further simplification of the tax code. It is absolutely rediculous that I either have to give up hours/days filling out a tax return or I have to pay someone to do it because it is so complicated.

11/1/2005 5:25:52 PM

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"AMT goes away, but without most of our mortgage interest and all of our state taxes we wouldn't be hit with AMT anyway."

sounds like a tax cut for the rich at the cost of the middle class. Sure if you're upper-middle and you can excape the AMT then you'll win...but anyone who wouldn't pay the AMT is getting screwed.

11/1/2005 10:24:32 PM

Quote :

"Although I support a reduction in the mortgage interest cap, I think the proposed range is far too low. I think a $500,000 cap is a fair enough compromise that will help deflate some of the regional bubbles while still enabling most people to own a decent home. Although $500k will get you a huge house on a golf course in NC, that would barely get you a starter home, condo, or townhouse in most high density areas."

I'm not so worried about that. I think this would help drive down housing costs in those markets. I did hear that they would shift it from being a deduction to being a credit which would help a good portion of homeowners.

I can't help but be suspcious of this though. In all likelihood, it will either change the total tax collections, or it will shift the tax burden.

11/1/2005 11:38:47 PM

Quote :

"Posting this in the soap box would have yielded OMF FUCK BUSH OMF BUSH IS GOD ... ad naseum...."

So true

I'll read this later ... as far as a cap, I agree if they're going to go that route they need to regionalize it.

More ammo for discussion: Someone look up Boertz's (sp?) book on the flat tax

11/2/2005 12:02:43 AM

Quite simply, these are some very dramatic, and very unlikely to pass in current form, tax revisions. Some will be adopted, some will be scrapped, and many will take many years to phase in. As a homeowner, its not something I'm incredibly concerned over at the moment, and I'm sure there will be magnitudes of displeasure over all of this.

11/2/2005 12:20:38 AM

supply side economics = voodoo economics

11/2/2005 12:25:51 AM

If this shit happens, I am honestly going to move somewhere else. The graduated tax structure is the only thing keeping this country somewhat solvent.

11/2/2005 12:29:01 AM

I am trying to figure out if I like this.

I am not subject to the AMT, but I understand the desire to get away from it. Conversely, I also agree with the intent behind the AMT in the first place--to keep wealthy taxpayers from deducting and crediting their way to inordinately and unfairly low tax bills--and am wondering why we wouldn't just re-index the AMT values for inflation.

At first glance it seems unfair: they're taking away my home mortgage deduction and replacing it with a credit of 15% of interest payment, but that is only an equivalent change for those in the 15% tax bracket. I am not. So I get screwed. I lose the deduction for state tax, which sucks, and while it's probably not an issue now, if I ever needed to cover a family on my health insurance, I bet it would cost more than $5,000 a year (which amounts to $416 a month--even my fiancee's family plan with the state costs more than that now for family coverage) and thus I would be taxed on the extra cost as if it were income.

In return, I get a shorter 1040 and very little change in tax rates. Oh, and no AMT, which I don't have to pay now anyway.

But will I pay less? Maybe, maybe not. According to the panel (and an AP report), "Winners and losers would be about equally distributed along the income spectrum in the first year of the new tax code, but by the 10th year, the winners would be disproportionately concentrated in the low-income brackets." so it's a 50/50 shot the first couple of years, and then it sounds like it's a sure bet that it gets better for people who make less and worse for people who make more.

OK. I'm still open to positive viewpoints. Businesses are taxed at a flat 30% of profits and capital expenses could be written off in the first year and not over a period of x years. OK--that doesn't help me very much unless I formed my own corporation and made all of my money through there.

But here's more: now my SEP IRA, to which I can contribute 25% of my self-employment income, is replaced with an account with a $10,000 limit. So if I make more than $40,000 in self-employment income, I'm now screwed by this new proposal again, since I can't save as much in a tax-advantaged account as I was previously able to.

I'm still wondering how this helps me. I guess I can now do my taxes on a 4x6 index card on the night of April 14, but I'd rather keep more of my money and fill out a couple of pages.

Luckily I highly doubt anyone has the political guts to let this one pass in its current form.

11/2/2005 8:50:30 AM

Quote :

"and am wondering why we wouldn't just re-index the AMT values for inflation. "

because that wouldnt help the rich people would it?

11/2/2005 9:03:18 AM

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"supply side economics = voodoo economics"

exactly. I highly doubt they could show how the economy would be affected if their middle class tax increase was pushed on the upper class.

11/2/2005 10:02:33 AM

Every time they try to simplify the tax code, it becomes more complicated.

If you want to worry about something, consider that Bush's tax cuts expire in 2010, and the sitting president will be Hillary Clinton.

11/2/2005 11:30:08 AM

You left out the part about how black people are to blame.

11/2/2005 11:32:05 AM

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"and the sitting president will be Hillary Clinton."

hahahahahaha

I'm a democrat, and I can only hope this isn't who we put up for pres. she won't win.

11/2/2005 11:49:50 AM

hassell - so you dissapear from TWW for 362 days and come back to write an essay on tax reform? ha

11/2/2005 11:50:15 AM

or how to run an ISP into the ground and steal money from college students

[Edited on November 2, 2005 at 11:58 PM. Reason : sdfkj]

11/2/2005 11:58:26 PM

Quote :

"If this shit happens, I am honestly going to move somewhere else. The graduated tax structure is the only thing keeping this country somewhat solvent."

You mean China right?

11/3/2005 3:54:11 AM

I'm particularly concerned about making us pay tax on the employer portion of the health insurance premiums. Since it's not reported on the W2, I have no idea what their share is.

If the gov't wanted to make the tax code simpler, why not LEAVE IT ALONE for a few years so we can catch up and figure out wtf is going on. The complexity isn't just from the form itself, but the fact that it changes every year

11/3/2005 7:24:09 AM

i talked about this in a soapbox thread i created a long long time ago

i'll let you search


there is a pulitzer prized author that wrote and lectures on this

people making between $50 an 500k/yr, bear an asymetrically high tax burden

11/4/2005 1:09:00 AM

^no fucking shit. It's called a progressive tax

11/4/2005 1:16:59 AM

fair tax

11/4/2005 5:03:44 AM

^^ i don't mean collectively

i guess i should've spelled it out. according to this guy's research, people making over half a mil a year evade taxes like a mofo, and end up paying a disproportionately low percentage.

11/4/2005 7:24:49 AM

^that is also well known

11/4/2005 8:23:42 AM

Here's another article focusing on the changes to Housing tax breaks

http://money.cnn.com/2005/11/03/pf/taxes/deduction_numberes/index.htm

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"Home tax breaks: Current vs. proposed How homeowners' tax bills might change under the new reform proposals. November 3, 2005: 2:10 PM EST By Jeanne Sahadi, CNN/Money senior writer NEW YORK (CNN/Money) - There's been ample criticism of President Bush's bipartisan tax-reform panel for the recommendation that lawmakers downsize the mortgage tax break for homeowners. In its final report to the Treasury Department, the nine-member panel suggested: • Lowering the amount of a mortgage loan on which homeowners get a tax break for interest paid. Suggested caps: Between $227,000 and $412,000. • Converting the mortgage-interest deduction to a tax credit equal to 15 percent of the interest paid up to the mortgage-interest cap. • Eliminating the deduction for interest paid on second homes and home-equity loans. • Lengthening the time taxpayers must own a principal residence before any gains from selling are tax free. (For more details on each provision, see below.) Spreading the mortage-interest break more evenly is one key reason for the change, the panel said, since currently only homeowners who itemize their deductions get the break. Under the proposed changes, all homeowners could claim the proposed home credit. In 2002, of the 130 million federal tax returns filed, only 46 million were itemized. Of those, only 37 million taxpayers claimed the mortgage-interest deduction. And among those who do itemize mortgage interest on primary mortgages, less than 10 percent have mortgages over $300,000, so many homeowners' loans aren't likely to exceed the panel's caps, said David Brunori, vice president of Tax Analysts. Your home tax break: Current vs. proposed Generally speaking, under the panel's proposals, the higher your mortgage loan and the higher your tax bracket, the more likely it is that you'll see less of a tax break than you would under the current system. We asked enrolled agent David Mellem of Ashwaubenon Tax Professionals to give us some sense of how homeowners' tax breaks under today's system would compare to those they'd receive under the proposed reforms. (This is by no means a comprehensive look at how taxpaying homeowners would fare overall under the proposals. Tax analysts have yet to complete those scenarios.) Married, with young kids: Here's what Mellem found for a married homeowner currently in the 25 percent tax bracket who itemizes deductions and plans to pay $18,000 in interest on a $300,000 mortgage in 2006. Under the current system, thanks to the home-interest deduction, he'd reduce his taxable income by $18,000, lowering his tax bill by $4,500 (18,000 x 0.25). In addition, if he has two children under 17, he'd get exemptions totaling $13,200 plus $2,000 from the child-tax credits, lowering his tax bill by another $5,300 ((13,200 x 0.25) + $2,000). So combining those two sets of tax breaks, he'd cut his tax liability by $9,800 under the current system. Under the panel's proposals, the new home credit would reduce his tax bill by just $2,700 (18,000 x 0.15). But, like all taxpayers, he'd also be entitled to a family credit, which would take the place of the current standard deduction, the personal exemption and the child-tax credit. The family credit for a married couple with two kids would be $6,300. Under the tax reform panel's proposals, then, he'd cut his tax bill by $9,000 ($2,700 home credit plus the $6,300 family credit), or $800 less than under the current tax code. Married, dependent kids over 17: However, under the current system, if his two children were dependents over 17, he'd lose the child-tax credit, and thus reduce his tax bill by only $7,800. Under the proposed system, the family credit wouldn't change, so he'd do better. Married or single, no kids: Married homeowners without kids would reduce their tax bill by $6,150 under the current tax code, which is $150 more than under the proposals. Single homeowners without kids would lower their tax liability by $5,325 under today's code, or by $975 more than under the proposed reforms. But -- and it's a big but -- none of these calculations include the deductions for property taxes and state and local income taxes that homeowners who itemize are entitled to take under the current system but which are eliminated under the panel's proposals. So for the married homeowner with two kids, assuming he deducts $10,000 for state and local income taxes and property taxes, he'd reduce his tax bill by another $2,500 ($10,000 x 0.25) on top of the $7,800 or $9,800, depending on his kids' ages. That is, under the current system, his tax bill would be cut by between $10,300 and $12,300, more in both cases than the $9,000 he'd save under the panel's proposals. Keep in mind two things, however: Taxpaying homeowners may enjoy tax breaks elsewhere under the reforms which can make up some of that difference. (Comprehensive analysis is still being conducted by tax experts.) And given how politically unpopular curbing home tax breaks are, don't count on changes yet. -------------------------------------------------------------------- In its final report to the Treasury Department, the nine-member panel suggested: Lowering the mortgage interest cap, which is the amount of a loan on which homeowners would receive a tax break for interest paid. Currently, that cap is $1 million. It would be lowered to levels on par with regional averages, which today would be in a range between $227,000 for lower priced housing markets to $412,000 for higher priced markets. Converting the mortgage interest deduction to a tax credit equal to 15 percent of the interest paid on loans up to the mortgage interest cap. Deductions reduce your taxable income and favor those who itemize and those in higher tax brackets. Credits, which are dollar-for-dollar reductions of the taxes you owe, benefit all taxpayers equally. Eliminating the deduction for interest paid on second homes and home-equity loans. Lengthening the time taxpayers must own and use a principal residence before gains from the sale of the home can be exempt from tax. The panel suggested three out of five years, up from two out of five years under the current code. Giving current homeowners a 5-year transition period in which they could claim either the home credit or the mortgage interest deduction. In each year, the amount of mortgage loan principal on which they could deduct interest would decline until the fourth year, when it would be capped at the regional limit between $227,000 and $412,000. For a look at other changes proposed by the panel, click here. And see why some of the assumptions the panel had to make may inflate the estimated cost of AMT reform, for which tax breaks like the mortgage deduction will help to pay for. "

11/4/2005 9:05:54 AM

:eek: :eek: :eek: :eek: :eek:

Messing with the home ownership tax credit is grounds for a coup. I dont know what the fuck they are thinking.

11/4/2005 9:21:10 AM

Quote :

"I'm particularly concerned about making us pay tax on the employer portion of the health insurance premiums."

I missed that. That's about the most assanine idea ever.

11/4/2005 10:23:53 AM