Proposed Tax Reforms
Well maybe tax “cuts” is the wrong description, but certainly the tax code will change if he (or rather the panel examining this thorny issue) gets his way. Two recommendations are to be made: most deductions, credits and other tax breaks would be eliminated along with much of the paperwork and equations that baffle taxpayers under a drastically simplified income tax.
Brief explanations of the two proposals by the President’s Advisory Panel on Federal Tax Reform:
— SIMPLIFIED INCOME TAX: Like the current system, this option levies taxes on individual and business income. The panel stripped out most of the tax deductions and credits available to taxpayers and added back only those that the panel members believed would encourage certain behaviors, such as saving, charitable giving or home buying. The panel said it wanted to shorten tax forms and remove some of the mystery involved in tax calculations.
— MODIFIED PROGRESSIVE CONSUMPTION TAX: To individual taxpayers, this system would appear almost identical to the simplified income tax. But, because of changes in the way businesses would be taxed, it marks a shift toward a consumption tax. Businesses could deduct their capital spending and wages from taxation, but they would lose a deduction for interest payments. This consumption tax would act indirectly, unlike a national retail sales tax. It differs from a pure consumption tax by applying a 15 percent tax on capital gains and dividends paid to individuals, a modification the panel made to prevent wealthy taxpayers from getting a much larger benefit than others.
Given that so far, Bush’s tax cuts have actually increased Federal tax income, these suggested tax changes might spur the American economy on to even greater heights. A very good, detailed breakdown and opinion of the proposed tax cuts can be found at The Jawa Report, tending to believe that the tax cuts will not be useful. Michael Williams is all for a simpler tax code (aren’t we all?) and has some good things to say about it. Finally, the economist Brad DeLong has a very interesting look at the proposed changes.
The plan will be submitted to Treasury Secretary John Snow; read more about the suggested tax changes at MSNBC »
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