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.
To encourage saving, workers would be given a new Save at Work account, which they would be enrolled in automatically unless they opt out, that would allow them to put away up to $10,000 per year of pre-tax dollars. A new Save for Retirement account would also be introduced, which would allow workers to save an extra $10,000 after-tax, and the money could be withdrawn tax free after age 58. Another $10,000 could be socked away in a Save for Family account, and a Refundable Savers Credit would credit taxpayers 25 cents for every dollar saved. The maximum savings amount would be $2,000, resulting in a $500 maximum credit.