Taxes: Simpson-Bowles … be careful what you wish for, because you might get it.

I often read “Why don’t they just implement Simpson-Bowles?”.

It’s usually stated in a way that it’s a painless gimme.

The convenient compromise.

My hunch: About as many people read the Simpson-Bowles Report as read the  ObamaCare law.

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I expect that S-B will become a template for any “grand bargain” … so I started refreshing my memory

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Taxes

Below is the summary chart from the report.

Most of the buzz centers on the reduction of rates, elimination of the AMT, and capping of some deductions.

Let’s get specific.

Among other things, Simpson-Bowles proposes:

  1. Three brackets with a top tax rate of 28% with no AMT
  2. Capital gains & dividends get taxed at ordinary income tax rates … not 15%, not 20% … 28% at top rates
  3. Muni Bonds: Income on newly issued  municipal bonds gets taxed … i.e. existing bonds are grandfathered as Fed  tax-free.
  4. Employer paid health insurance premiums: Exclusion phased out by 2038 (2038?) via a complicated formula catering to unions … translation: employer paid health insurance premiums would eventually be taxed as ordinary income
  5. Deductions: Eliminate ALL itemized deductions … everybody takes the standard deduction … offset by some capped credits
  6. Mortgage deduction replaced by a 12% non-refundable tax credit … Mortgage capped at $500,000; No credit for interest from second residence and home equity loans
  7. Charitable giving: 12% non-refundable tax credit available above 2% of Adjusted Gross Income (AGI) floor … e.g. if you make $100,000, then no credit for the first $2,000 of charitable giving.
  8. No deduction or exclusion for State & Local Taxes … i.e. state income taxes, state sales taxes, local real estate taxes

Obviously, these changes hit different people in different ways.

Start planning …

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Simpson-Bowles Report

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2 Responses to “Taxes: Simpson-Bowles … be careful what you wish for, because you might get it.”

  1. Per Simpson-Bowles … go ahead, eliminate the deduction for state & local taxes. « The Homa Files Says:

    […] For more on Simpson-Bowles and a link to their report see Taxes: Simpson-Bowles … be careful what you wish for, because you might get it. […]

  2. Per Simpson-Bowles … go ahead and limit the mortgage interest deduction. « The Homa Files Says:

    […] For more on Simpson-Bowles and a link to their report see Taxes: Simpson-Bowles … be careful what you wish for, because you might get it. […]

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