From USA Today: Tax proposal for less paper, but fewer deductions
So Bush’s tax commission has decided to “simplify” tax forms — by eliminating many popular deductions in favor of a “family credit”, which would include raising the per-child deduction to $1,500. Also (and here’s the kicker that’s going to cost all of us), the tax commission, concerned about all the people being caught by the Alternative Minimum Tax, proposes to repeal the AMT.
This is probably great news if you’re affected by AMT (see below for percentages of people affected — and note the income ranges). Note that the numbers used to calculate AMT have never been adjusted for inflation.
However, here’s what will be eliminated or reduced to pay for AMT repeal:
- State and Local propery tax deductions
- Student Loan interest deductions
- Mortage interest and health insurance deductions
What will some people get?
- The “family credit” that rewards lots of kids
- A “savers credit” designed to encourage savings (if only our government did that, the people might follow suit!)
- “Dividends from a corporation’s domestic earnings would be tax-free; other dividends would be subject to a taxpayer’s ordinary rate, rather than the current 15%.”
- Non-itemizers could take deductions for charitable contributions and health insurance premiums.
Who gets hurt?
- My family (2-income, no kids). Virtually all of our major deductions would go away, saddling us with an even higher tax bill (and we already pay a lot!).
- California, New York, and New Jersey — and any state where people bought more house than they could afford, thinking, “well, I can deduct the interest”.
- People who don’t get corporate dividents (most Americans, I’d guess?)
From reading this article, it looks like the only way NOT to get screwed at tax time is to skip college, own nothing, and have a lot of kids. Or you could be super-rich, which is such a possibility for everyone in this country (</sarcasm>).
So, combine this rocket science plan with higher fuel taxes, higher interest rates, skyrocketing fuel costs, and the new bankruptcy bills, uncontrolled government spending, and a complete lack of fiscal policy, and we have a whole cookbook for economic disaster.
Wouldn’t it make more sense to just adjust the AMT numbers for inflation? But, heaven forbid this administration do anything sensible….
Who’s affected by AMT? Source
| Income | Year | Year | Year |
| 2000 | 2005 | 2010 | |
| $75,000-$100,000 | 2.3% | 14.7% | 29.3% |
| $100,000-$200,000 | 5.7% | 16.1% | 35.6% |
| $200,000-$500,000 | 18.8% | 34.0% | 64.0% |
The AMT sucks but this awful plan only makes the sucking louder and more powerful so it scoops up even more people. The “savings” deduction is ridiculous on its face, too, given that most of us don’t have any money to save and with the way the economy’s going we’re not going to, no matter what the tax incentive.
As for taking away the mortgage deduction, can they really happen, do you think? Won’t the powerful real estate industry, mortgage lenders and bankers go berserk, because people really do exactly what you say they do, which is to buy properties at least in part to get the deductions?
Re: mortage deduction. I hope everyone goes nuts over this. Getting rid of the deduction might raise tax revenues, but it really hurts those who could use a break. I’d love to know how many people on Bush’s tax commission actually pay any taxes — probably not many.
Plus, I’m really sick of the administration pushing crap like this. What are they going to call it? “Middle Class tax freedom act of 2006”??
The version I heard on the news tonight laid out two mortgage deduction proposals:
If option #2 really is as it was present, I think that’d be beautiful for us. Its the well-off upper-middle class who vote Republican for their own financial self interest. Its not like too many poor or middle class families have jumbo-mortgages (> $330K). This will hit their unthinking base — and the segment of it that can afford to contribute a lot to political campaigns. That also happens to be the segment that complains the most about AMT.
Confronted with that, maybe they’d wake up and start calling for another way to pay for the elimination of AMT… like… the estate tax on estates > 10 million?
#2 sounds OK, but $350,000 won’t buy much in, say, the L.A. area, or New York. Seems there should be some way to avoid hurting people who have to spend $500,000 to get a dinky 2-bedroom that needs to be remodelled?