Following its meeting on Tuesday, the Presidential tax reform panel revealed that it has formulated two plans aimed at simplifying the US tax code.
The first plan is based on retaining the current income tax system, but in a greatly simplified form, whilst the other plan is likely to involve the introduction of a consumption tax.
Under the simplified plan, the tax panel is recommendeding several measures, including: cutting the number of tax brackets to six from four, to be levied at 15%, 25%, 30%, and 33%; eliminating the marriage penalty; eradicating double taxation of dividends and capital gains; eliminating state and local tax deductions; limiting home mortgage deductions; capping tax free limits for employer-provided health plans; reducing the number of tax-advantaged retirement plans; and eliminating the Alternative Minimum Tax (AMT).
Under the second option, the panel will recommend: the imposition of a 15% consumption tax for individuals on capital gains, interest and dividends; a reduction in the number of income tax brackets to four from six (at the same rates as in the first option); limited mortgage interest relief; and the elimination of AMT.
Both plans aim to be revenue neutral, so, in theory at least, taxpayers will be paying the same amount of tax as under the current system.
"We made some tough recommendations," former Florida Republican Senator Connie Mack, chairman of the tax panel, observed at a press briefing following Tuesday's panel meeting.
"State and local taxation is one of them. Mortgages is another. But I think that overall it's balanced, and overall the numbers are going to come out pretty close to where they were before in terms of the burden of the tax that people are going to have to pay," he added.
The panel is due to formally present its recommendations to Treasury Secretary John Snow on November 1, who will then advise President Bush on the best option to take.
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