Wednesday, October 19, 2005

Tax Proposals Draw Fire

Two options for simplifying the tax code will be submitted to President Bush on November 1st by a presidential advisory panel charged with analyzing and improving upon the existing income tax structure. (Washington Post: Panel's Tax Plans Meet With Criticism). Neither of the proposals, however, sit well with members of Congress, and the President has not committed to accepting either of them.

The new plans are based on the elimination of all tax deductions and exemptions, replacing them with tax credits. For some, this will mean a decrease in their overall tax burden, however for many it will constitution a significant tax hike. One plan calls for the elimination of the deduction for state and local income taxes. According to Senator Charles E. Schumer (D-NY) that would amount to a $12 billion tax hike for New York residents alone.

Also proposed is the elimination of deductions for interest paid on mortgages, replacing it with a 15% tax credit based on the size of the mortgage payment. For a huge majority of American home owners, this interest deduction is the single largest tax deduction available to them. For any home owner that is not currently in the 15% tax bracket, the replacement of this deduction with the proposed credit is a significant tax increase. This proposal will have the greatest impact in California and the Northeast - parts of the country already feeling the sting from the outsourcing of high paying technology jobs.

The second proposal also would increase the highest tax bracket from 33% to 35%. Without using the phrase "tax hike", that's precisely what this proposal constitutes, and as such it is not likely to muster President Bush's signature.

The simplification of the tax code is certainly beneficial, however a tax increase on middle and upper class America under the guise of tax code simplification is not acceptable. Many middle class Americans rely on deductions and exemptions to keep their disproportionate tax burden under control. The elimination of those deductions is a tax increase that middle class American cannot afford and one the economy cannot sustain. The duel reports due on November 1st barely deserve the time it takes to run them through the shredder. Neither of the proposals are viable and neither are likely to receive much support either in Congress or with President Bush.


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