Tax Reform Panel Signals Its Intentions

President Bush’s Advisory Panel on Federal Tax Reform said October 18 that it would recommend the following changes to the President come Nov. 1: moving the current tax code structure to a consumption tax; making the deduction of home mortgage interest payments into a tax credit and lowering the mortgage limit; simplifying the tax code by doing away with the deduction for state and local income taxes; reducing the number of tax brackets to four (15%, 25%, 30%, and 33%) from the current six and introducing a simplified tax form (reducing Form 1040 to 32 lines from 75); and capping the tax breaks for health insurance premiums paid by employers to $11,500 per family.

The panel also agreed that it would not recommend a value-added tax, and again reiterated its support for abolishing the Alternative Minimum Tax (AMT). Among the other changes, the panel said it would recommend simplifying tax breaks to allow taxpayers to save more, reducing the corporate tax rate to 32% from 35%, and establishing a 15% tax on capital gains. The panel also said U.S. corporations would pay no taxes on profits of their active foreign operations under the simplified income tax.