I like the general thrust of the tax reforms being proposed by the President's special commission. They sound like a step in the right direction towards simplification, even though they don't go far enough towards a flat tax to make me ecstatic.
Under the plan, 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. ...
Under one plan, individuals would pay no tax on dividends paid by U.S. companies and exclude 75 percent of their capital gains from taxation. Under the second plan, all investment income would be taxed at 15 percent.
Both proposals would abolish the alternative minimum tax, a levy originally drafted to prevent wealthy individuals from escaping taxation but increasingly reaching into the middle class. They also would eliminate federal deductions and credits for mortgage interest, state and local taxes and education, among others.
The advisory commission would replace those withdrawn tax breaks with simpler benefits, including three savings plans that supplant dozens currently available for retirement, medical expenses and education.
Removing deductions for state and local taxes is important because these deductions enabled local governments to set tax rates with little consideration for their impact on citizens, since they'd be paying the money to the feds if not elsewhere. It also makes a lot of sense to simplify the number of savings plans available; it's a matter I've been interested in recently, but I can't even figure out plans exist, much less how to take advantage of them properly.
Bush set certain limits on the panel, requiring that the new plans collect as much tax money as the government collects now.
The proposals also had to retain the progressive system that taxes wealthier taxpayers at higher rates than poorer individuals and families. They were also required to recognize "the importance of homeownership and charity in American society."
Hopefully a simpler tax code will evnetually allow for a lighter tax burden without all the political wrangling, but President Bush was smart to leave that battle for the future. This tax reform commission hasn't had a high profile up till now, but if the President can make these changes happen they will make a significant contribution to his legacy and to America's future.