A Look at Dubya’s Tax Reform Panel’s Proposals

More details of the recommendations of the President’s Advisory Panel on Federal Tax Reform have come to light. These are more extensive than those proposals that I mentioned .

I don’t want to spend a whole lot of time on this. It’s just a proposal — it’s a long way from being enacted into law, and it may sink into oblivion like Dubya’s mad Social Security party. Even if it does get through the Congressional tract, it will probably be hard to recognize when it comes out the other end. But still, it makes sense to keep an eye out for what might be coming and to try and anticipate how conscientious tax resisters may choose to react.

Some elements of the new recommendations are:

  • Something akin to the “X Tax” preserving a progressive income tax, but eliminating taxes on dividends and reducing capital gains taxes as a way of simulating a consumption tax within an income tax framework
  • A smaller number of tax brackets, with 75% of people in the lowest, 15% bracket
  • Accelerated depreciation on business equipment
  • New tax-free savings accounts for retirement, health, education, and home buying will replace the existing tax-free and tax-deferred accounts such as Health Savings Accounts, Individual Retirement Accounts and so forth — this could allow a taxpayer to shield up to $20,000 from taxes each year. “Low income taxpayers could get a savers credit worth up to $500,” which is the cornerstone to my current tax avoision technique.
  • Abolishing the Alternative Minimum Tax
  • Flattened and simplified business taxes
  • Something called the “new work credit” that replaces the Earned Income Tax Credit
  • Eliminating some deductions, such as the itemized deduction for state and local taxes paid
  • “Myriad personal and family tax breaks would be replaced with one family credit. Income tests designed to keep most current tax breaks within the middle class would be eliminated, letting wealthier individuals and families benefit.”
  • Restrictions and reductions of the mortgage interest deduction
  • Caps on the deduction for health insurance that employers provide to workers, and elimination of the deduction for other employer-provided benefits like child care and life insurance
  • Abolish taxes on social security benefits

Depending on how these are implemented, or indeed if they are, this could be a boon or a challenge to conscientious tax resisters.

The Tax Foundation is hoping a few well-placed white papers will influence the powers-that-be to do something about all us Lucky Duckies.

the percentage of zero tax filers in 2004, 32%, is the highest at any point since 1950

Percent of Tax Filers Who Owe Zero Federal Income Tax,

Tax Foundation economists estimate that in , some 42.5 million Americans (one-third of all filers) filed a tax return but had no tax liability after taking advantage of their credits and deductions.

Figure 1 shows the percentage of non-payers . During that period, non-payers averaged 22 percent of all taxfilers. Today, however, non-payers account for 32 percent of all taxfilers, a nearly 50 percent increase in the number of non-payers and a 160 percent increase in the number of non-payers .…

In addition to these non-paying filers, roughly 15 million individuals and families earned some income in but not enough to be required to file a tax return. When these non-filers are added to the non-payers, they add up to 57.5 million income-earning households (sometimes referred to as tax units) who paid no income taxes last year.

Even 57.5 million is not the actual number of people because one tax return often represents several people. When all of the dependents of these income-producing households are counted, roughly 120 million Americans — 40 percent of the U.S. population — are outside of the federal income tax system.

To me, this is not a problem but a solution, but the Tax Foundation sees it differently: “While some may applaud the fact that millions of low- and middle-income families pay no income taxes, there is a threat to the fabric of our democracy when so many Americans are not only disconnected from the costs of government but are net consumers of government benefits. The conditions are ripe for social conflict if these voters begin to demand more government benefits because they know others will bear the costs.”