Listening to Myself

Wednesday, October 19, 2005

Tax reform

I have been eagerly awaiting the results of the tax advisory commission (yes, I'm serious, I'm that weird) and I'm pretty pleased with what I've been able to read so far about their findings. I think that what they are recommending makes a lot of sense and would go a long way towards simplifying the code and evening things out. I'm glad to see that the AMT would disappear and that many of the deductions would either go away or get turned into credits. The elimination of the tax breaks for property taxes and state and local taxes is an interesting touch, and I didn't expect that one but I think it seems reasonable. There's always some faint hope that perhaps this could pressure high property and income tax states to shift their tax break and create a more level playing field between the states. The changes in the mortgage deductions could be quite interesting - limiting the amount of the mortgage interest that could be deducted (and turning it into a credit), killing the second home deduction and then raising the cap on excluded gains could really help out the middle and lower middle class with their home mortgages, more so than the current scheme. I haven't read much in detail about the simplified savings accounts, but I think it would be hard to create something that would be worse than our current scheme of 11 or 12 different types of retirement accounts, 4 different education savings paths, not to mention the 2 different medical savings accounts. (Numbers may be wrong, I'm trying to remember back to my tax class last year, and things have changed a bit since then w/ the new Roth 401(k)s) Overall, I think they've done a good job balancing everyone's general interests and trying to come up with a system that is attempts to at least minimize the pain (afterall, we are talking about taxes here, so there's got to be some pain involved!)

Of course, the whole thing is a pipe dream and is bound to go exactly nowhere. The Sacramento Bee had a great editorial by Dale McFeatters about it this morning (sorry, registration required) which does a nice job summing things up and I thought I'd quote his summary, as he does a good job showing exactly why nothing will come of any of this:

"The recommendations of tax reform commissions - and the shelves are packed with their sensible proposals - tend to come as a unified whole. Like the proverbial sweater, start pulling out individual threads and soon the whole thing comes unraveled.

The dirty secret of the tax code is Congress writes it and the IRS only administers it - and takes the heat for the lawmakers' handiwork. Congress placed every deduction, credit, account, shelter, and loophole there in response to the demands of favored and powerful constituencies.

And we expect Congress to yank these breaks away from them just because it makes sense? Good luck."


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