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

Last week with Ryan & the Dems offering dueling budget plans, there was renewed chatter: “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

Here’s what you need to know …

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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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