Washington – President Bush’s tax panel on Tuesday endorsed a drastically simplified income-tax system that envisions eliminating most deductions, credits, savings incentives and other tax breaks, replacing them with a few simpler benefits.
Taxpayers would pay roughly the same amount of tax under the simplified system as they do now, panel members said. But most of the confusing tax paperwork would be gone, and complex tax equations that baffle taxpayers would be simplified.
“I don’t think it’s a small move in this direction; I think it’s a huge move,” said Charles Rossotti, panel member and former Internal Revenue Service commissioner.
The White House made no commitment to stick to the panel’s recommendation when forwarding its tax-simplification proposal to Congress, a move Bush spokesman Scott McClellan said is not expected before next year.
The President’s Advisory Panel on Federal Tax Reform is tasked with making multiple recommendations for different tax methods that make income taxes a fairer, simpler and more economically productive system. Its final report is due Nov. 1.
The plan includes savings accounts for retirement and major family expenses very similar to a proposal put forward by Bush.
The panel would shrink the number of income-tax rates from six to four and put 75 percent of individuals and families in the bottom 15 percent tax bracket.
The proposal abolishes the alternative minimum tax, a levy designed to prevent the wealthy from evading taxes but which is increasingly creeping into the middle class. Individuals would not pay tax on roughly three- quarters of the capital gains on corporate stock.
However, the federal tax deduction for state and local taxes paid would disappear. Myriad personal and family tax breaks would be replaced with one family credit. Income tests designed to keep most current tax breaks within the middle class would be eliminated, letting wealthier individuals and families benefit.
Benefits and savings accounts for retirement, health and education would be eliminated in favor of three savings accounts, all funded with taxed income that would be allowed to grow and be withdrawn tax-free.
