Tax Overhaul Glance
Oct. 19, 2005 (Associated Press) The President's Advisory Panel on Federal Tax Reform endorsed recommendations Tuesday designed to drastically simplify taxes for individuals and families. Here's a list of major changes included in their proposals.
Tax rates: Reduce the current six income tax rates to four.
Personal and family tax breaks: Replace with a single family credit.
Earned income tax credit: Replace with a work credit and give low-income taxpayers eligible for the credit the option of letting the Internal Revenue Service calculate its value.
Marriage penalty: Virtually eliminate by making tax breaks for married couples worth twice that of individual taxpayers.
Alternative minimum tax: Eliminate.
Employer provided health insurance: Cap unlimited tax breaks for insurance premiums at $11,500 for a family or $5,000 for an individual. All other untaxed employee fringe benefits would be taxed.
Home mortgage interest deduction: Eliminate and replace 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.
Capital gains exclusion for home sales: Increase from $500,000 to $600,000 and escalate in future years to keep up with inflation.
Charitable giving: Offer tax benefits for donations exceeding 1 percent of a taxpayers' income.
Retirement: Replace multiple 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would let individuals put up to $10,000 in a savings account that, like Roth IRAs, grows tax-free and can be withdrawn tax-free after age 58.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.
Investment income: The two plans endorsed by the panel treat investment income differently. 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.