Presidential Panel Recommends Tax Reform

A presidential panel on federal tax reform on Nov. 1 issued a report that recommends two plans that it believes will make the tax code simpler, fairer, and more conducive to economic growth.  The nine member bi-partisan panel was appointed by President Bush in January.  It submitted its report to the Treasury Secretary on Nov. 1. 

The panel put forth two plans, which they call the Simplified Income Tax Plan and the Growth and Investment Tax Plan.

The Simplified Income Tax Plan is “a streamlined version” of our current tax system, as the president requested one of the options be based on the current structure.  The Growth and Investment Tax Plan is different in that it moves more towards a consumption tax and would impose a reduced flat rate tax on capital income received by individuals.  Both plans have similar goals and so the President’s Advisory Panel determined that the following aspects could be recommended for both plans: 

•     Create only two credits related to family status, a Family Credit and a Work Credit, that consolidates family, child, and work-related tax benefits.

•     Simplify tax benefits for charitable giving, home ownership, and health coverage, and ensure these are available to all taxpayers.

•     Eliminate the personal and corporate Alternative Minimum Tax.

•     Simplify the treatment of Social Security tax benefits by using a simple deduction.

•     Reduce marriage penalties by making tax brackets and other provisions for married couples equal to twice the amount for unmarried taxpayers.

Both plans rely on similar principles to remove impediments to saving and business investment, but by using different approaches.  These principles include:

-     Providing simple and straightforward ways for Americans to save free of tax.

-     Simplifying the code for small businesses.

-     Moving as far as possible to eliminate the double taxation of corporate earnings and providing a more level playing field for different types of business investment.

-     Updating our international tax rules to reduce economic distortions and improve fairness by promoting U.S. competitiveness.

It remains to be seen if Congress will consider legislation that includes these types of changes. 

A comparison of these options can be found in the charts on pages XIV and XV of the executive summary or on http://hill.beef.org/pdfs/taxproposalcomparisons.pdf. To see the tax panel’s full report, go to www.taxreformpanel.gov.