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Blowing Up the Tax Code

From CNN Money. The Debt and Deficit Commission appointed by Obama earlier this year have some preliminary findings--and they ain't pretty!

"Bowles and Simpson offer two options that slash tax breaks. And by doing so, they can lower income tax rates.

In their "zero plan" option, breaks are eliminated altogether. Under that scenario, individual income tax rates -- which they reduce from six brackets to three -- can fall substantially.

For instance, the lowest two rates (10% and 15%) could fall to 8%. The middle two rates (25% and 28%) could drop to 14%. And the top two rates (33% and 35%) could drop to 23%.

The corporate rate, meanwhile, could drop to 26% from 35%, to make it more attractive for companies to invest in the United States.

On the other hand, of course, lawmakers could choose to retain tax breaks. But the fewer they prune, the less rates can be lowered.

The second option from Simpson and Bowles, building on a bipartisan proposal in Congress, would reduce the mortgage interest deduction. The tax break would apply only to the first $500,000 of a loan on one's primary residence, about half of what counts today.

The second option would also repeal the state and local tax deduction and various other itemized deductions.

Individual tax rates under that plan would be 15%, 25% and 35%.

Another big proposed change under both reform plans would affect investment income. Capital gains and dividends, which are currently taxed at 15%, would be taxed as ordinary income -- that is, at higher rates."

...

"Who exactly will be paying in all that extra revenue? A specific break-out by income groups is still in the works.

It is likely that more people would end up with higher -- rather than lower -- tax bills, a commission staffer said. But he also noted that the revised tax code would probably be more progressive."

...

"Translation: Taxes are going up one way or the other. The question is will those higher taxes be levied in a system that is widely considered to be outdated, overly complex and highly inefficient, or in a system that is simpler and smarter?"

It seems to me that no matter which plan is chosen, we're all going to pay more in taxes and have less to take home--option 1 wants to do away with ALL tax breaks, including (I assume) child credits, earned income credit, employer health plan credits, retirement savings credits, mortgage interest deduction (for those who can claim it), no more business write-offs, no more investment loss deductions...the list goes on. Every penny we earn would be taxable.

Option 2 (as I see it) would merely cut back on current deductions and raise limits for others.

I believe we'll end up seeing both options--politically-speaking, they'll probably end up doing option 2 before option 1. State and local taxes will be left untouched, meaning we're still on the hook for those.

...and they wonder why we're not spending!

If anything, this is STILL a good time to be unemployed--if you don't make taxable wages, tips, or salaries, they can't tax you every pay period. If you don't make commissions, bonuses, earn interest or dividends, or make capital gains, they can't tax you at the end of the year. If you don't work, you can't eat, so guess what European program is going to take the place of meaningful employment? That's right--we're going to become a welfare nation just like Britain.

Don't be surprised if someday in the future, our government pays people to be sterilized, or leave this country. We're overpopulated for the economy.

Whatever option s chosen, then we'll get to see who's REALLY middle class and who's rich. Chances are good that if you make less than $250k, you're really in the low income bracket. So much of our lives are subsidized and we don't even realize it.

Posted by Cute at 8:33 PM

Labels: economy, financial (non-tax), taxes