The Tax Redux

November 1, 2005 3:47 PM

The President's Advisory Panel on Tax Reform has issued their final report. They propose two different plans - one plan called the "Simplified Income Tax Plan" and one called the "Growth and Investment Tax Plan." Both plans do such things as eliminate the Alternative Minimum Tax, reduce the tax rate in all the brackets and changes the home mortgage interest from a tax deduction to a tax credit at the lowest bracket tax rate (15%) and limits the mortgage amount to the regional average instead of up to $1.1M. Lots to read, and lots of graphs for those who like pictures instead of words (the report starts with income distribution, tax burden, etc and goes on to different tax strategies).
posted by SirOmega (35 comments total)

So it's a choice -- either SIT or GIT -- I wonder what the message is in the acronyms, if any.
posted by hank at 3:53 PM on November 1, 2005

I think I will wait a day or two and read what the Tax Policy Center has to say about it.
posted by terrapin at 4:03 PM on November 1, 2005

Having read through most of this, the majority of it simply strikes as common sense (regardless of political leaning).

It's based on the idea that we must tear down and start over instead of trying to patch. This may be a bad idea from a Social Security standpoint, but is actually a good thing for the overly complex tax code.

Now, it does have a conservative slant to it, as would be expected, but it's a lot more moderate than I expected, and it's easier in this form for a new administration to set the critical variables between the L-R stants.

I'm impressed with it, but it doesn't make my day. I'm more impressed that the graphs reasonably accurately represent the truth of what it's saying than with the what it is saying. Finally a bit of transparency in this admin.

Oh, and in case you're wondering, I'm reasonably liberal with a libertarian streak.
posted by mystyk at 4:05 PM on November 1, 2005

The one thing conservatives and liberals agree on (thankfully) is that the AMT has run its course. Probably for different reasons though.
posted by terrapin at 4:24 PM on November 1, 2005

Well, I'm more than a little queasy at the thought of the bank having to report all your debit and credit card transactions to the gummint....
posted by pjern at 4:25 PM on November 1, 2005

Tax change proposals to set off howls of protest.
posted by ericb at 4:33 PM on November 1, 2005

As far as the Home Mortgage Interest deduction goes, I read in the WSJ a day or so ago (can't find the article online) that in both cases, the current mortage interest rate deduction would be grandfathered, and that the new tax structure would only apply in the event of a refi type event.
posted by psmealey at 4:34 PM on November 1, 2005

I love the strategy of allowing the AMT to hit more middle-class people therefore we have to kill it. Brilliance.

Plus the mortgage deduction -> credit change shouldn't be that big a deal, long term. Limiting it to 150% of the median value makes sense, as does changing it to a credit (basically knocking it back to the 15% rate is equivalent to getting the deduction at 15% instead of your marginal bracket of eg. 28%).

People who think the mortgage deduction actually makes houses more affordable don't understand economics (since EVERYONE gets the deduction, the net effect is just to jack up home valuations).

'course people who are leveraged into their present homes based on that $$$ might be feeling some pain on the rules change. But I doubt the (R)'s have the mojo or the will to push this particular change thru.
posted by Heywood Mogroot at 4:35 PM on November 1, 2005

People who think the mortgage deduction actually makes houses more affordable don't understand economics (since EVERYONE gets the deduction, the net effect is just to jack up home valuations)
Except that everyone _doesn't_ get the same value of their deduction (which you admit above), so for some it does more good, regardless of the net effect of raising home valuations, and thus does have differential value depending on income.
posted by incongruity at 4:40 PM on November 1, 2005

Too bad. I was rooting for keeping the AMT and offering another variation on it so that we'd have three different ways to figure taxes.

They could keep the silly AMT if they just indexed it to inflation.
posted by mrhappy at 4:48 PM on November 1, 2005

They could keep the silly AMT if they just indexed it to inflation.

The AMT makes baby Jesus cry. It has got to go.
posted by psmealey at 4:51 PM on November 1, 2005

I'm torn; as a fervent Bush hater, I don't want to like anything that comes from the White House. But as the world's 24 millionth richest person, I'm all in favor of eliminating the AMT.
posted by jonson at 5:01 PM on November 1, 2005

What it would take for Metafilter's upper-middle classes to revolt.

Let them eat cake.
posted by Rothko at 5:07 PM on November 1, 2005

Anyone care to explain this, especially in terms of how this change will offset the deficit spending?
(And I'm surprised that Kwantsar isn't in here yet).
posted by klangklangston at 5:08 PM on November 1, 2005

Goodbye blue-state middle class! (To be more factual, that money usually goes right back into the house, in my case, thus helping to maintain its value.)

snsranch grumbles as he heads to his new second job as might manager at Taco Bell.
posted by snsranch at 5:13 PM on November 1, 2005

If the AMT applied to incomes over $200k (ie people who have people -- and I'm not talking HR Block -- prepare their taxes) then I don't see the big deal.
posted by Heywood Mogroot at 5:14 PM on November 1, 2005

Except that everyone _doesn't_ get the same value of their deduction (which you admit above), so for some it does more good, regardless of the net effect of raising home valuations, and thus does have differential value depending on income.

disagree since similar incomes buy similar houses.
posted by Heywood Mogroot at 5:15 PM on November 1, 2005

I make under $40K and I had to pay AMT last year because I wrote off a lot ($10K) of fire-related damages and state taxes from the previous year.

I'll admit it's a bit confusing why I had to pay it. I thought it was mostly for people with valuable stock options or other securities.

More and more I'm seriously pondering tax resistance for this year, but my tax-lawyer friend doesn't think much of the idea.
posted by mrgrimm at 5:33 PM on November 1, 2005

I heard it said by a commentor (or commentator) on the radio today that the U. S. tax code is so complex and ambiguous in its current byzantine state that it is, in and of itself, a drain on the economy; in that the resources epended to interpret, comply with and or exploit it are a drain on the economy, going to entities such as lawyers and accountants who don't make anything.
posted by longsleeves at 5:53 PM on November 1, 2005

So this explains why Bush is wearing that bullet proof vest, eh.
posted by Smedleyman at 6:05 PM on November 1, 2005

Tax accountants aren't going to be happy about this, are they?
posted by davejay at 6:18 PM on November 1, 2005

"Having read through most of this, the majority of it simply strikes as common sense" - That depends on the meaning of the words "common" and "sense", eh ?


If one one understands "common" to mean "top 1% of wage earners" and "sense" to mean "advantage" well then yes - I agree.
posted by troutfishing at 7:59 PM on November 1, 2005

troutfishing, did you read either proposal? Or is that a knee-jerk anti-Bush-administration reaction? I'm in that "top 1% of wage earners" and I don't see how I win with either SIT or GIT. They're closing loopholes, knocking down my enormous mortgage deduction.... ouch.
posted by JParker at 8:24 PM on November 1, 2005

It's been a general EU policy to phase out mortgage interest relief for more than a decade now, on the basis that is is non-progressive and discriminatory. Not to mention that it distorts the market. Brussels keeps issuing directives about this, and most member states keep ignoring them. It's politically toxic. Most EU countries burdened with middle classes overly fond of interest relief have grudgingly budged a little by mainly limiting the length of years that interest relief can be claimed, or limiting it to a single primary residence, or limiting it to first-time buyers. Or try to disguise it by shifting it from a clawback or payroll credit to an "at source" credit, that is, a reduction in the bill by the mortgage lender. I think the idea of the "at source" strategy is to make it easier to cease it at one fell swoop at some future date.
posted by meehawl at 8:26 PM on November 1, 2005

JParker - You're right. I probably should have said ".1%"

I guess you just don't make the grade for Bush Adm. upper class tax status. Welcome to the club.

Are you now upset because the Bush Adm. has restricted access to the "special" club and you're not in it ?

Who knows - this proposal might be progressive or even Christian. But little so far from the Bush Administration has been. I'll wait until the morning - when people who specialize in tax code issues, such as David Kay Johnston, opine before I pass judgement.
posted by troutfishing at 8:41 PM on November 1, 2005

Heywood Mogroot writes "I love the strategy of allowing the AMT to hit more middle-class people therefore we have to kill it. Brilliance.


When exactly was the AMT made to hit more people? I might be wrong, but I thought it was a function of the rest of the tax system changing: as more people were getting extra deductions they became eligible under the original provisions (made for millionare tax avoiders)


"Plus the mortgage deduction -> credit change shouldn't be that big a deal, long term. Limiting it to 150% of the median value makes sense, as does changing it to a credit (basically knocking it back to the 15% rate is equivalent to getting the deduction at 15% instead of your marginal bracket of eg. 28%).


Wouldnt it actually make a difference for lower income home buyers, who actually don't pay federal income taxes? That credit might not matter for you at your income level, But for lower income individuals it could be put straight toward buying the house that before they would not be getting anything for. Before they weren't paying federal taxes at the level where a deduction mattered to them. A credit however would incentivize home owning for that income bracket.
posted by stratastar at 8:46 PM on November 1, 2005

"When exactly was the AMT made to hit more people? I might be wrong, but I thought it was a function of the rest of the tax system changing: as more people were getting extra deductions they became eligible under the original provisions (made for millionare tax avoiders)" -

David Kay Johnston, the Pullitzer winning NYT tax code reporter , describes in painful detail how the architects of the AMT - and those who perpetuated it - knew quite well what the AMT would do down the line.

The claim that the AMT hit on the middle class was "accidental" was blown out of the water by Johnston - for those who care to ( or have time to ) read.
posted by troutfishing at 9:07 PM on November 1, 2005

When exactly was the AMT made to hit more people?

How it's not indexed for inflation. But you're probably right that middle-class deductions can also ensnare people more & more.

A credit however would incentivize home owning for that income bracket.

This is a good point that I missed from incongruity's post above. Knocking it from a straight deduction (which always comes out to one's top marginal bracket) to a 15% credit does tilt the playfield toward the lower-middle class more, allowing them to bid for more house vs. the middle-middle class.

I don't have the stats (or training!) to even begin to figure out how this would effect valuations, though.
posted by Heywood Mogroot at 9:27 PM on November 1, 2005

I still would like someone to summarize this oft referred to chapter from Kay Johnson's book, on the nefarious intentions and forsight of the AMT's creators in *cough* 1968-9 *cough.* I assume that it links directly with the fact that the tax was not inflation adjusted. Not inflation adjusting the tax seems like a pretty major public policy oversight; but whatever possible intentions, to me, are cancelled out by the number one rule of public policy that no one looks into the future.
posted by stratastar at 10:08 PM on November 1, 2005

When a president apointed council issues an official report like this, and they use cute comics like "Frank and Ernest" and others, do they pay a licensing fee to the publisher for them?
I mean they are using them in a sales brochure.
The comics were probably my favorite part, next was the pie charts, and the pretty colors.
posted by Balisong at 10:34 PM on November 1, 2005

Like the various lobby groups are going to let any of this go through...they have to much to loose.

I've gotten through the executive summary, and I don't find anything that I take extreme opposition to. It seems like those in the higher-tax brackets will benefit the most, and certain areas of the country (or pockets of "red" states) might be heavily taxed, but that seems like political suicide for a Republican dominated congress. I'd like to see some real world numbers for comparisons sake.

And I like the idea of tax credits versus deductions. (Credits directly reduce your taxes paid, while deductions reduce the amount of income that is taxable). This way, everyone (who knows about them) can get them.
posted by rzklkng at 8:13 AM on November 2, 2005

I still don't get why the working poor should be taxed more then the working rich.
posted by parallax7d at 9:44 AM on November 2, 2005

I still don't get why the working poor should be taxed more then the working rich.

follow the money.
posted by Heywood Mogroot at 10:03 AM on November 2, 2005

Heywood, I understand why it's done, I just don't understand why it should be done.
posted by parallax7d at 10:42 AM on November 2, 2005

parallax7d, if you're one of the people with the money who run things, the reason why you do it is to take more money away from everyone else. That's their philisophical standpoint. It's not good for everyone as a whole, but clearly some folks could care less, as long as they have all the money and power.
posted by zoogleplex at 12:39 PM on November 2, 2005