Tax Reform

TAX REFORM….Ah, I see that the news I missed during my little blackout last night was this Washington Post article about the Bush administration’s likely plans for tax reform.

Apparently the idea of a flat tax or a national sales tax isn’t under consideration after all. Instead, the plan is to fiddle with the current tax code.

But fiddle how? After a quick look, Matt Yglesias says, “I count three tax cuts for the wealthy here offset by two tax hikes on the middle class.” Is he right? Let’s excerpt the relevant passages from the Post article in handy bullet list form:

  1. ….shield interest, dividends and capitals gains from taxation.

  2. ….expand tax breaks for business investment.

  3. ….eliminating the deduction of state and local taxes on federal income tax returns.

  4. ….scrapping the business tax deduction for employer-provided health insurance.

  5. ….large savings accounts that could shelter thousands of dollars of deposits each year from taxation on investment gains.

  6. ….eliminate the alternative minimum tax, a parallel income tax designed to ensure that the rich pay income taxes.

Matt was close! But I count four tax breaks for the well off (1, 2, 5, and 6) along with two tax hikes on the middle class (3 and 4). I guess you can argue about #2 if you want.

The final plan might look completely different, of course, but it sort of shows you how they’re thinking, doesn’t it?

UPDATE: And Max points out that since blue states generally have higher state income tax rates than red states, #3 is a stealth tax on blue state residents. Well, that’s what you get for voting against the guy! To the victor etc. etc.

UPDATE 2: Matt emails to say that he was counting #1 and #5 as the same thing. Good point. #5 is basically just the vehicle for accomplishing #1.

So that gets the score back to 3-2. On the other hand, interest, dividends, and capital gains are really three things not one, and if you break them out separately the score rises to 5-2. Any way you count it, the well off are doing pretty nicely here.