The president’s tax panel is recommending two proposals to the Secretary of Treasury, who will make the final recommendation to President George W. Bush. The following summary is from the Tax Foundation and can be viewed in full, with analysis, at http://www.taxfoundation.org/publications/show/1155.html.
Plan A works within the current income tax system to:
- simplify the current tax code from six tax brackets to four (15 percent, 25 percent, 30 percent, and 33 percent);
- replace the current low-income tax credits with a family credit and a work credit;
- fold the individual Alternative Minimum Tax into the current system by repealing the AMT, while repealing the deduction for state and local taxes;
- replac[e] the home mortgage interest deduction with a limited credit;
- limit the tax exclusion for employer-provided health insurance to $11,500 for families and $5,000 for singles;
- consolidate the various savings vehicles into three simple savings plans while eliminating the tax on dividends paid by corporations from domestic profits and providing a 75 percent exclusion for capital gains; and
- cut the top corporate income tax rates to 31.5 percent from 35 percent, move to a territorial tax system, and repeal the corporate AMT.
The more ambitious Plan B would keep most of the Plan A provisions and:
- move toward a progressive “hybrid” income-consumption tax with three individual rates (15 percent, 25 percent, and 30 percent);
- tax all capital income (dividends, capital gains, and interest) at a uniform 15 percent;
- replace the corporate income tax system with a “cash-flow” tax at a rate of 30 percent;
- allow full expensing of capital investments; and
- eliminate the deduction for interest payments for businesses.