Two proposals for tax reform took definitive shape at the latest meeting of the President's Advisory Panel on Federal Tax Reform. The panel's final report is due Nov. 1.
The group agreed to recommend two plans, both of which are similar in their treatment of individuals and families, though the elimination of local deductions would affect taxpayers in some parts of the country much more than others. The plans' main differences involve business taxes, though both would lower the maximum corporate tax rate 3 percent, to 32 percent.
The first plan would simplify the current system by eliminating the deduction for state and local taxes, among other tax benefits. The second broader proposal would move the tax code toward a modified tax on consumption. Chairman Connie Mack said that the changes were designed so that the tax burdens of the rich, middle class and poor would be roughly the same as now.
Under both plans, personal exemptions and almost all deductions would be replaced by tax credits. Each of the former are worth more to taxpayers in high brackets than to those in lower brackets. The changes would be phased in over five years to allow taxpayers to adjust.The panel had already agreed to recommend eliminating the alternative minimum tax, a burden that is increasingly falling on middle-income taxpayers. To offset the more than $1 trillion the AMT was scheduled to generate over the next ten years, the commission will propose limits on other widely used tax breaks -- such as limiting tax breaks for homeowners and how investment income can be treated.
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