Bush's Tax Advisory Panel is a disaster in the making. Their stated purpose is to come up with a revenue neutral (the time period is not specified) plan to:
(a) simplify Federal tax laws to reduce the costs and administrative burdens of compliance with such laws; (b) share the burdens and benefits of the Federal tax structure in an appropriately progressive manner while recognizing the importance of homeownership and charity in American society; and (c) promote long-run economic growth and job creation, and better encourage work effort, saving, and investment, so as to strengthen the competitiveness of the United States in the global marketplace.
According to the NY Times, the Panel has concluded that a consumption tax (sales or VAT) is a bad idea. Apparently, if they exempted food, education, and medicine, they'd need a sales tax rate of about 87%. Instead, the panel is focusing on reforming the federal income tax. (While a proposal for a "flat tax" is still possible, apparently the panel is unlikely to come to much of a consensus on that.) The only thing they have agreed on so far is that their proposal (originally due out in July, now pushed back to November) will feature the following tax cut:
1. They will eliminate the Alternative Minimum Tax entirely. This will cost $1.2 Trillion over 10 years.
This sounds great, especially if you're at the upper end of the tax ladder. And more rungs are being eaten up by the AMT every year. According to Forbes, 2.3 million people paid the AMT for the 2003 tax year, 13 million are expected to do so for 2005, and 33 million by 2010. The big question, though, is how they are going to pay for it. That's where the "Oh My God..." moment comes in. The proposals under consideration are:
A. Lower the mortage deduction ceiling from $1 million down to about $300,000.
B. Reduce the mortage deduction from 35% of interest payments down to 25% or 15%.
C. Limit tax-free health insurance premiums to $11,000/year or below (as opposed to the current system where employers can deduct every penny, and employees are not taxed on the premiums.)
D. Limit the ability to deduct state and local income taxes from the Federal income tax.
Are they insane? It would be hard to think up a set of proposals that would hurt ordinary Americans more. Here's a better idea: abolish the AMT and pay for it by closing tax loopholes and creating a higher income tax bracket rate for the millionaires for whom the AMT was originally invented. There is an extensive, if somewhat biased discussion of the AMT at this House of Representatives website.
You know, I almost wish Bush would endorse these proposals. That might ensure the Democrats retake the White House in 2008.