FUN WITH TAXES….The President’s Advisory Panel on Federal Tax Reform released their recommendations today. Sort of. There was nothing on paper and no real details, mind you, but there was a three-hour discussion this morning where they presented a bunch of their ideas. I’ve collected all the recommendations I could find by combining lists from here and here.
So who benefits from the panel’s recommendations? The poor? The middle class? The rich? Do you have to ask?
These are mostly guesses on my part, but for each proposal I’ve tried to figure out who benefits or gets hurt the most. Bottom line: the rich do mighty well under these recommendations, which include a lower top rate, lower taxes on investment income, and elimination of the Alternative Minimum Tax. The rest of us? Not so well.
Who It Hurts/Who It Helps
The alternative minimum tax would be abolished.
This tax currently applies only to high income taxpayers. Eliminating it helps the rich and the well off.
The six tax brackets in the existing law would be replaced by four, with a low bracket of 15 percent and a top rate of 33 percent. The top rate now is 35 percent.
A lower top tax bracket benefits the wealthy.
There are two different recommendations for investment income. One would eliminate taxes on dividends paid by U.S. companies and exclude 75 percent of stock capital gains from taxation. The other would tax investment income at 15 percent.
Either plan would primarily benefit the wealthy, who have much greater investment income than the poor and middle class.
Eliminate and replace the home mortgage deduction with a 15 percent credit for mortgage interest paid during the year. The size of a mortgage eligible for the credit would be limited to the Federal Housing Administration loan limitation, which varies by geographical region but averages about $265,000.
Hurts the middle class and the well off, who can currently deduct interest on loans up to $1 million. Hurts residents of coastal states and cities with high housing values. Replacing a deduction with a credit is probably good for the working class, but not so good for the middle class, which can currently deduct at a higher rate than 15%.
Increase the capital gains exclusion for homes sales from $500,000 to $600,000 and escalate in future years to keep up with inflation.
Helps upper middle class and well off, who are the ones who own homes likely to increase in value by more than $500,000.
No deduction would be allowed for state and local income and property taxes.
Hurts anyone who deducts state taxes, but especially hurts residents of high-tax blue states like California and New York.
Eliminate the marriage penalty by making tax breaks for married couples worth twice that of individual taxpayers
Employer-paid health insurance premiums above $5,000 a year for an individual and $11,500 for a family policy would be treated as income to workers and taxed accordingly.
Primarily hurts the middle and upper middle class. High income taxpayers with executive healthcare would also be hurt, but not very much since healthcare is a small percentage of their income. The working poor would probably be largely unaffected since they are mostly either uninsured or already under the proposed limits.
Replace Earned Income Tax Credit with a work credit and give low-income taxpayers eligible for the credit the option of letting the Internal Revenue Service calculate its value.
Hard to say without more details.
All taxpayers could deduct charitable donations, but only to the extent they exceeded 1 percent of a taxpayer’s income.
Most likely beneficiary is churches, who get a lot of their donations from taxpayers whose incomes are too low to qualify for itemized deductions.
Personal exemptions and deductions and credits for children would be eliminated and replaced by a credit of $1,600 for a single person, $3,200 for a couple, $1,500 for each child and $500 for each other dependent.
Hard to say. Depends on the details.
Replace multiple retirement savings accounts with two simpler accounts. One, Save at Work, would let employees save by setting aside untaxed wages, similar to 401(k) accounts. The other, Save for Retirement, would let individuals put up to $10,000 in a savings account that, like Roth IRAs, grows tax-free and can be withdrawn tax-free after age 58.
Education, health and savings: Eliminates existing tax breaks and replaces them with a savings account, Save for Family, that lets individuals put $10,000 aside each year for medical, education and home-buying expenses. Individuals could withdraw no more than $1,000 a year for other needs. Low-income savers could qualify for a credit worth up to $500.