Bush's Tax Panel May Review Housing Tax Break, but it "seems unlikely"

[Bush_Eats_Beef]

Bush's Tax Panel May Review Housing Tax Break, by Leroy Baker, Tax-News.com, New York 26 August 2005

http://www.tax-news.com/asp/story/story_open.asp?storyname=20918

The Advisory Panel, which is headed by former senators Connie Mack and John Breaux and is due to report to President George W. Bush by September 30, is studying options to lower taxes on many types of investments to meet Mr Bush's goal of spurring savings and economic growth. Changes to housing-related tax incentives would also be considered, said Jeffrey Kupfer, the panel's staff director.

The panel has said little so far about its conclusions, although in July it called for the elimination of the Alternative Minimum Tax system. "The panel has come to the consensus that we ought to repeal the AMT," panel chairman, former Senator for Florida Connie Mack told reporters. However, Mack conceded that the panel as yet has no clear idea on how to replace the $1.2 trillion in tax revenues that the AMT will bring in over the next ten years. Also, panel vice chairman, former Senator John Breaux (D - La) suggested that some form of alternative system must exist in the tax code to ensure that the wealthy can not get away with paying little or no tax. The commission members also indicated their preference for removing the minimum corporate tax as part of a broader overhaul of the corporate tax system, although it appears that no decisions have been made beyond repeal of the individual AMT.

Mack has set five goals for the panel when it reports its recommendations at the end of September, including: simplifying tax filing procedures; promoting fairness and removing tax gimmicks; scrapping inefficient tax breaks and loopholes designed for special interests; encouraging savings and; removing barriers to competitiveness in American business.

The tax panel may be tempted to recommend a reduction in housing's relative advantage. Members of the Panel said at hearings that they were considering a wide range of ways to stimulate savings. The options range from cutting rates on dividends, interest and capital gains to streamlining tax-free savings mechanisms for retirement, education and health care. However, the President, in his instructions to the tax panel, said that it should "recognise the importance of home ownership" in considering what changes to recommend. And given the importance of the housing sector to so many business interests and investors, it seems very unlikely that Congress would contemplate any major worsening in the regime for housing investment.

[Peter Frank]

1. Bush Doesn't Come Out for Anything that Doesn't...

...serve the super-wealthy.

[Peter Frank]

2. What Happened to his Promise to Rid Africa of Aids??? n/t

[Bush_Eats_Beef]

3. Read what Nancy Pelosi has to say about Bush's "Tax Reform" agenda:

http://democraticleader.house.gov/press/releases.cfm?pressReleaseID=701

FOR IMMEDIATE RELEASE
September 23, 2004

Pelosi: ‘National Sales Tax Would be Burden for Middle Class Americans, But Boon for the Wealthy’

Washington, D.C. -- House Democratic Leader Nancy Pelosi held a news conference in the Capitol this afternoon with Congressmen Charles Rangel of New York, and John Spratt and James Clyburn, both of South Carolina, to denounce a Republican plan for a national sales tax. Below are Pelosi’s remarks and a fact sheet about the proposal:

“Today, we are here to highlight one of the many clear contrasts between Democrats and Republicans: Republicans want to undermine our American values of prosperity and fairness with a new national sales tax of at least 30 percent and as high as 50 percent or more on all goods, including homes and cars.

“A national sales tax would be a burden for middle class Americans, but a boon for the wealthy. Families with children would lose their current tax deductions, and seniors would essentially be taxed twice.

“This proposal is ludicrous and should be dismissed outright. Yet Speaker Hastert wrote about the national sales tax and the flat tax in his new book, saying ‘both of these ideas are worthy of consideration.’ And Majority Leader Tom DeLay is co-sponsoring the bill, and has said: ‘It is high time the debate about the flat tax and a national consumption tax moved out of Washington think tanks and into American living rooms. That's why I have signedon to Congressman John Linder's proposal to scrap the current tax code altogether and replace it with a national sales tax.’

“The Republican plan would make it harder for middleclass families to make ends meet. A national sales tax would undermine the American value of prosperity. For example, cars that cost $20,000 would cost an additional $6,000 under this proposal. Just wait until the car dealers hear about this proposal. Prescription drugs that cost $100 would now cost $130. New homes, insurance premiums, brokerage fees, and gasoline would all be heavily taxed to replace revenue brought in by the current tax system.

“It would wipe out our system of progressive taxation. A national sales tax would undermine the American value of fairness.

“The American people should be aware that the Republicans’ primary tax agenda is a new national sales tax.”

The Republican Plan to Raise Taxes on the Middle Class

All over the country, middle class Americans are being squeezed byRepublican policies that have lost 1.7 million private sector jobs; allowed the price of health care, education, and gas to skyrocket; and created record deficits. Now Republicans are proposing a new national sales tax that would increase taxes for the typical middle class by about 50 percent. Democrats know that approach is wrong. Instead of raising taxes on the middle class, Democrats have pledged to promote prosperity and fairness by enacting middle class tax relief, creating new jobs, and eliminating tax loopholes so all Americans pay their fair share.

GOP SALES TAX HIKES A FAMILY’S TAX BURDEN BY 50 PERCENT

The new GOP national sales tax would replace all personal and corporate income taxes, Social Security, Medicare, and payroll taxes, and gift and estate taxes with a new national sales tax on goods like groceries, clothing, new home sales and apartment rents, and health care services. This new GOP tax would be applied on top of existing state sales taxes. This proposal would increase taxes by about $3,200 a year for 80 percent of taxpayers, and potentially more for some families.

MIDDLE CLASS FAMILIES SQUEEZED AGAIN

Families with children. Families with children are hit the hardest, as this proposal would eliminate all the current law tax benefits for these families, including the child tax credit. A middle class family with four children with a combined income of $65,000 would face an increase of more than $5,000 in their tax liability.

New homeowners. The Republican tax hike proposal would eliminate the tax deduction that families get on their home mortgages and apply this new sales percent tax to the cost of a home. If a family buys a new house listed for $150,000, the new tax brings the actual purchase price to $195,000.

Jump in property taxes. The Republican sales tax hike would require states to send an additional $300 billion to the federal government in sales taxes – a tax increase that states would immediately pass on to residents. Arkansas, Delaware, Kentucky, Hawaii, and New Jersey could all see property tax increases higher than 400 percent. The lowest state property tax hike possible – in New Hampshire – would still be more than 70 percent.

Gas and electricity. The average family would pay an additional 60 cents a gallon for gasoline – a new tax that will hit families in rural areas particularly hard. Families with large home heating or cooling bills also will be harmed.

SENIORS FACE NEW TAXES

Beneficiaries pay twice for Social Security and pension benefits. Most Social Security benefits and a portion of pension payments are exempt from income tax. But this proposal requires seniors to pay the new sales tax – meaning that seniors are now being taxed twice for their Social Security, once when they pay the payroll taxes and again when they pay the sales taxes.

Threaten Solvency of the Medicare Trust Fund. Medicare would be required to pay the new sales tax as well, forcing the program into insolvency in five years. If this proposal were enacted, Medicare would run out of funds in 2009.

Undermines pension coverage. The new GOP sales tax hike would reduce the incentives employers currently get for offering their employees a pension plan. The American Academy of Actuaries has concluded that “pension plans would quickly diminish in number and size and gradually disappear” if a consumption tax, such as the national sales tax were enacted as a substitute to the current income tax.

[wli]

4. I have a tax reform plan that would get me assassinated...

No tax for anyone making under a million dollars a year.

100% tax on all income over a million dollars a year.

[Bush_Eats_Beef]

5. Unfortunately, I think Bush has the opposite in mind...

No tax for anyone making OVER a million dollars a year.

100% tax on all income UNDER a million dollars a year.

More on the "Fair Tax / National Sales Tax"...

http://www.rothcpa.com/archives/cat_tax_reform.php

June 02, 2005
I DON'T THINK HE LIKES THE 'FAIR' TAX

The "Fair Tax," a proposal for a national retail sales tax, has gotten some attention in the tax reform debate. Joseph Thorndike, a columnist for Tax Analysts, isn't quite sold on it:

First, though, we have to sort through an embarrassment of riches: How can we identify the worst quality of a tax that has so many? As numerous critics have pointed out, the Fair Tax would raise too little revenue and prompt too much evasion. Its popularity depends on unreasonable assumptions and misleading descriptions. It would never work as advertised -- a fact that many of its supporters either choose to ignore or secretly celebrate.

But other than that, maybe he likes it.

WHAT IS THE REAL RATE?

Mr. Thorndike points out that the 23% rate touted by Fair Tax supporters is misleading, because it is a "tax inclusive" rate. The 6% tax rate we Polk Countians are accustomed to is "tax exclusive" - it isn't included in the sales tax rate.

Example:

Wally buys a new computer for $1,000, and he pays $60 in sales tax. His "tax exclusive" rate is 6%. His "tax inclusive rate" is 5.66% (60/1060 = 5.66%).

If you compute the "Fair Tax" the way we are used to talking about sales tax rates - tax exclusive - it will apply at a 30% rate. That's a real difference.

Perhaps we are biased, being income tax consultants, but the Fair Tax seems to have some huge practical problems. Two come immediately to mind.

WHEN RATES GET TOO HIGH, PEOPLE CHEAT

Sales taxes are only likely to work if rates are low enough to not interfere with commerce. When combined with state and local taxes, the Fair Tax would burden every trip to Git 'n Go with a 36% or higher surcharge. This is high enough to push many transactions into the E-bay economy.

HIGH SALES TAX RATES THREATEN BUSINESSES THAT COLLECT SALES TAXES

Taxpayers going through their first sales tax audit are astounded at how big the assessments can be. They also know that they aren't as simple as many folks believe. While income taxes are only a problem to the extent your business is profitable, sales taxes apply even when you are losing money, and they apply based on gross receipts - a much larger base than taxable income.

Because sales taxes are computed on a big base, a small error in determining what transactions are subject to tax can lead to a stiff assessment over three years, even at a "low" 6% rate. At a 36% rate, even little errors would be ruinous.

FAIR TAX PROSPECTS?

Mr. Thorndike doesn't think the Fair Tax will survive the tax reform process:

And the winner of this year's prize for Worst Idea in a Serious Public Policy Debate: the Fair Tax. In all likelihood, this plan for a national retail sales tax has already exhausted its 15 minutes of fame. Sometime later this summer, President Bush's commission on federal tax reform will probably put it out of its misery.

[wakeme2008]

6. And will the rich dude buying his $26,000,000 yacht pay it

NO there will a off-shore loop hole.

And there will a Corporate Credit Card loop hole, IMHO, that will protect the rich from paying it when they eat out.