CNN: Proposal: Kill AMT, some breaks and fat

[jbooma]

This is how it will impact us. Curious what all of you think. I like consolidating the 401k's etc, however not lowering the limit you can contribute, that is a mistake.

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

Proposal: Kill AMT, some breaks and fat

President Bush's tax-reform panel submits two proposals that would alter the federal tax code.

November 1, 2005: 6:05 PM EST

By Jeanne Sahadi, CNN/Money senior writer

NEW YORK (CNN/Money) - The president's tax-reform advisory panel 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 huge when 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."

The panel's mission was not to reduce taxes, but rather to make the tax code simpler, fairer and better able to promote economic growth. The president also told panel members that any proposal would have to raise the same amount of tax revenue that Uncle Sam collects today.

Upon receiving the panel's report at a press conference Tuesday morning, Treasury Secretary John Snow said the proposals would be a starting point for recommendations the Treasury would make to the president, possibly by year end.

If that's the case, President Bush may include some specific recommendations for tax reform in his State of the Union address early next year. But that doesn't mean changes are imminent. All tax proposals are controversial and some of the panel's proposals have already come under fire.

Here are some of the key changes 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 available 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 first proposal, focused on simplifying the tax code, 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 and 8.25 percent, depending on your tax bracket.

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 homeowners 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. Deductions benefit high-income taxpayers the most and are limited to those taxpayers who itemize on the federal tax returns.

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.

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 percent, 25 percent, 30 percent and 33 percent.

Under their second proposal, which combines the income tax with a progressive consumption tax, there would be only three tax brackets: 15 percent, 25 percent and 30 percent.

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, 403(b)s, 457s -- into one Save at Work Account with simple rules and an annual contribution limit of $10,000.

They also propose replacing all types of IRAs with one Save for Retirement Account that would be available to all taxpayers. You could contribute up to $10,000 a year with after-tax dollars that would grow tax-free. 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 or whether your earnings grow tax-free.

Education savings plans like 529s and health savings plans like flexible spending accounts (FSAs) would all be consolidated into one Save for Family Account. This account, which would be available to all taxpayers, could also be used for new home and retirement savings as well. You could contribute up to $10,000 a year with after-tax dollars that would grow tax-free.

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, which would replace the standard deduction, the personal exemption, the child tax credit and the head of household filing status and tax bracket; and one for work, which would consolidate the earned income tax credit and refundable child tax credit.

[NoCalMike]

Well we are changing ever so boldy into an owenship society where people are rewarderd, for the more equity and property they own.

[jbooma]

Well we are changing ever so boldy into an owenship society where people are rewarderd, for the more equity and property they own.

I think some of these changes to the code is different then that. They are now opening up programs that others before never were able to be a part of.

[Thiebear]

I was hating on this when i heard about it.

Now though it doesnt look bad and i love the one kind of 10k ira..

Anything short of a postcard that says: Its yours.. keep it. should be investigated by those with larger brains than mine though..

[jbooma]

I was hating on this when i heard about it.

Now though it doesnt look bad and i love the one kind of 10k ira..

Anything short of a postcard that says: Its yours.. keep it. should be investigated by those with larger brains than mine though..

I agree with the IRA part, it is about time you simplify it. The mortgage deduction should be interesting, just who is this targeted at? Is it only going away if your home is more then $400K, and if that is the case it is going to kill those in cities who are paying for where they live, now what they live in. Like everyone here in the DC area :doh:

My wife who is in comp and benefits mentioned the health thing for companies is not a good thing.

[chomerics]

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.

This doesn't bother anyone???

How about this. . .

The net effect is that your capital gains would be taxed at rates between 3.75 percent and 8.25 percent, depending on your tax bracket.

THe nubmers on house prices are also wrong, they were from $170K to $312K

This is yet more Dooh Nibor welfare for the rich. How many ES'ers paid Capitol Gains tax last year? How about the top 0.01% of the population? Would it behoove you to know the top .01% pay the MAJORITY of their taxes in capitol gains?

How ANONE can justify somebody making millions of dollars only owes at MOST 8%, while the working stiff making $50K/year has to pay 25% is so far beyond the point of rational thought.

[jbooma]

This doesn't bother anyone???

How about this. . .

THe nubmers on house prices are also wrong, they were from $170K to $312K

This is yet more Dooh Nibor welfare for the rich. How many ES'ers paid Capitol Gains tax last year? How about the top 0.01% of the population? Would it behoove you to know the top .01% pay the MAJORITY of their taxes in capitol gains?

How ANONE can justify somebody making millions of dollars only owes at MOST 8%, while the working stiff making $50K/year has to pay 25% is so far beyond the point of rational thought.

I think they will be paying a wee bit more then 8% :doh: This new tax code takes away the loopholes the rich have with deductions, yet you are now upset by it. I am starting to wonder if you would ever be happy, also don't try and play being a poor man when all of us know the truth.

[HOF44]

This is yet more Dooh Nibor welfare for the rich. How many ES'ers paid Capitol Gains tax last year? How about the top 0.01% of the population? Would it behoove you to know the top .01% pay the MAJORITY of their taxes in capitol gains?

How ANONE can justify somebody making millions of dollars only owes at MOST 8%, while the working stiff making $50K/year has to pay 25% is so far beyond the point of rational thought.

I have to agree with you on this one chrom. How can they only tax capital gains at that rate?? Thats criminal.

[chomerics]

I think they will be paying a wee bit more then 8% :doh:

Booma, it is in the article you posted!!!!!!!

This tax plane GIVES rich people a tax cut, and places the cut on the poor and the working class. It is pretty much in black and white.

Follow me here OK.

Where do the top earners make all of their money? From 9-5 jobs? They make their money from Capitol Gains. THey buy and sell stocks, real estate, companies, get dividends etc.

They want to tax the richest Americans in this country, the people I just mentioned, at a rate of 8.25%!!!!!!

Meanwhile, people who WORK for their money get a tax INCREASE!!!!!!

Do you not see this? Seriously Booma, what I am saying is EXACTLY what this new tax idea is about.

[FBChick]

Essentially, what she is saying is I can make $100,000 on a stock sale and only pay 8% tax on the money.

Or I can work 55+ hours a week, 52 weeks a year, earn $100,000 and then pay 25% tax on the money

Her statement is basically it takes money to invest money and actually make enough to really worry about Capital Gains tax.

But the catch 22 to the whole issue and where people have been crying for a break on is things like inheritance, and savings. To bump up Capital gains is to also deter the average person from placing their investments in the stock market, which hurts economic growth. Trying to find was to punish the Rich never fails to hurt those further down the chain, just like everytime we try to be good and give those further down the chain, the Rich find ways to exploit the heck out of it.

The only way to even come close to fair on Capital Gains is to base the rate on the percentage of the gain to ones overall income. This would come closer to taxing those that make most of their money off of Capital Gains closer to the rate the rest of us pay, while not penalizing the average guy for trying to get his kid through college. But then that isn't simplifying, nor does it really promote economic growth which basically means it's not in the realm of what this committe was setup to do.

[jbooma]

Booma, it is in the article you posted!!!!!!!

This tax plane GIVES rich people a tax cut, and places the cut on the poor and the working class. It is pretty much in black and white.

Follow me here OK.

Where do the top earners make all of their money? From 9-5 jobs? They make their money from Capitol Gains. THey buy and sell stocks, real estate, companies, get dividends etc.

They want to tax the richest Americans in this country, the people I just mentioned, at a rate of 8.25%!!!!!!

Meanwhile, people who WORK for their money get a tax INCREASE!!!!!!

Do you not see this? Seriously Booma, what I am saying is EXACTLY what this new tax idea is about.

You are missing the point if the low end of the capital gains tax is now 4% then that will help all of us, not just the rich. When we sell a home we are not going to get killed on the tax if we do not follow the 1 and 5 year rule.

Lets also look at it this way if you are selling millions in stock you are still paying a lot of taxes yes the percentage is not high, but you also must account for all the other taxes that they pay in what they buy.

I am not an accountant but if they sell the stock they will then pay the 8% but then isn't it included on their taxes as money earned, so they will have to pay a tax on it again.

[FBChick]

My wife who is in comp and benefits mentioned the health thing for companies is not a good thing.

It can actually be pretty devasting. Most companies share of your Insurance cost can range close to $500 a month, that's the equivalent of tacking on about $6000 a year into your taxable income or you owing a couple hundred more in taxes each year. At the rate health insurance is rising, it could very well price more people right out of being able to afford insurance. A No win situation if you ask me.

Same goes with the health savings plan, which currently is funded with pretax dollars. To me I don't see these steps as really simplfying anything, just pulling money out of the pre-tax bracket and into the after tax bracket. Plus I'd love to see how the accounts have to managed with everything rolled into one

[FBChick]

I am not an accountant but if they sell the stock they will then pay the 8% but then isn't it included on their taxes as money earned, so they will have to pay a tax on it again.

No, that's why there is a difference between Capital Gains and Income. Capital Gains was created to allow for a different taxing scheme for what was viewed as a "one time only" income, mainly so people didn't get burned on their regular income.

Say you earn $40,000 for the year at you job and you fall into the 25% tax bracket. That same year your mother dies and you inherit $50,000. Without capital gains, you are now stuck paying 33% on all $90,000. With Capital gains, you pay 25% on the $40,000 and then 15% on the 50,000. It was one of those things created to essentially help increase capital investment, which helps economic growth and recovery, without punishing those that could find the cash to actually invest

The problem is that over the last 20 years, people are finding ways to litterally make a living off of capital gains (Stocks, realestate, etc), which allows them to make $1,000,000 a year and only pay 15% in taxes. A change in the law can litterally lower their tax rate to 8%, even lower then the lowest income bracket.

[NavyDave]

Living off of my capital gains with a better return than the work week??

I'm not there yet but that would be sweet

[Ignatius J.]

FBchick, actually the tax you are talking about is the estate tax and not the capitol gains tax, both of which are kind of messed up.

Why not start off by treating everything you make as income? Why are capitol gains treated any differently? That way, you can raise capitol gains on just the wealthy?

There must be a good reason why they do this.

[Thiebear]

So because of my kids and my house I was paying 8% in taxes.. isnt that the same thing as the Rich . So does that mean they will get to pay the same amount as me percentage wise but more than I will pay in my lifetime?

I have no problem with that.

[jbooma]

FBchick, actually the tax you are talking about is the estate tax and not the capitol gains tax, both of which are kind of messed up.

Why not start off by treating everything you make as income? Why are capitol gains treated any differently? That way, you can raise capitol gains on just the wealthy?

There must be a good reason why they do this.

I think this is the case so people feel better to invest their money instead of sitting on it. It grows the market and stocks, and investments. Which is a good thing.

[jbooma]

I think another way to look at this is it fair for the rich to pay so much more?? They are not getting any additional services that we do not get. This point that they have more means they should pay doesn't mean it is true.

Lets take someone at $250K and someone at $50K

Lets say just by Chroms theory that they pay equal in taxes and the one at $250 pays at a higher rate:

$250K x 33% = 82,500 a year in taxes

50 x 28% = 14,00 a year in taxes

if person a makes a million then they pay 330K how on earth is that fair?? if they pay the 8% then the pay 80000 which is close to what the person who makes 250K

Is it fair that the person who makes a lot of money has to pay almost 6 times more then the other??

This is where I think our tax code is all screwed up, we punish the rich just because the poor do not pay taxes, so why is that fair??

So Crom for that .01 they are still paying = or more to what someone who makes $250K if they sell at least a million in stocks in one year.

[Ignatius J.]

jbooma,

you're right. It's not fair. But it's the price the rich pay to keep us from revolting and burning down thier houses to take thier money.

[jbooma]

jbooma,

you're right. It's not fair. But it's the price the rich pay to keep us from revolting and burning down thier houses to take thier money.

Or could it be they sign our paychecks that give us jobs

[jbooma]

chom waiting for a response

[gstahl]

Out here in the San Jose the mortgage tax change will kill folks. The housing cost is so crazy that most folks income is wrapped up in paying for housing. Additionally is the state and local tax deduction changes include property taxes then most deductions here will be gone. Folks will likely see a collapse in the housing market in CA and lots of folks way upside down in there loans unable to get out.

Seems that this proposal hurts areas of high housing costs and high property taxes which sure seem like the "blue" states and areas. Just makes you think...