Thursday, November 1, 2007

ALSO VERRRRRY INTERESTING!

An article from the daily Accountants’World.com email headline newsletter brought a new, to me, tax proposal that would end the dreaded AMT to my attention.

The
Simplified, Exact, Transparent (SET) Tax, developed by of all people the NY State Society of CPAs, offers a greatly simplified approach to income tax reform that eliminates the AMT and other unnecessary complexity of the current tax system.

It appears that this proposal has been around for a while. According to the NYSSCPA website, “Earlier in 2005, the Society submitted its [SET Tax] proposal to the President's Tax Reform Panel for consideration”.

According to the “short-version” of the proposal the SET Tax is a “solution to the dysfunction of the current income tax system for individuals and corporations.” A taxpayer (and I do believe that this includes corporations as well as individuals) would be taxed using a “simple, straightforward, and easy to understand” formula –

(Income – Congressionally defined exclusions) x Rate = Tax

The SET Tax would use a single flat tax rate for all levels of income. However, unlike other flat tax plans, it would continue to allow the Congress to create “exclusions” to “accomplish public policy goals such as achieving progressivity, encouraging economic behavior such as saving for retirement, manufacturing in the USA, discovering oil, or developing alternate energy sources, and accomplishing social policy goals such as encouraging home ownership, charitable giving, etc.”

Under the SET Tax -

· There would be a single, relatively high tax rate – for example 33 1/3%.

· Income would be ALL income, measured under existing principles (presumably net Schedule C, D, F, E). There would be no omission from realized gross income – just the “Congressionally defined exclusions”. For example, currently tax-exempt interest on municipal bonds would be included in income, but could also be one of the “exclusions” if Congress wanted to continue its tax-exempt status.

· Every taxpayer would have at least one basic lump-sum “personal” exclusion – similar to the current personal exemption and standard deduction. NYSSCPA suggests a $30,000 exemption.

· The exclusions could include all or part of the currently allowed deductions for real estate and state and local income and/or sales taxes, mortgage interest, charitable contributions, retirement savings contributions, tuition and fees, etc – whatever Congress wanted to include. An effective lower tax rate on capital gains could be continued by providing an exclusion of perhaps 55% of net long-term capital gains. Congress could do away with double-taxation of dividends by providing a 100% dividends-paid exclusion for corporate taxpayers. Businesses could also be allowed an exclusion similar to the current Section 179 expensing of capital asset purchases.

· Every taxpayer would be required to file a tax return, although not everyone would have a tax liability. The proposal correctly states that “we do not believe it is wise to remove individuals completely from tax reporting, even if they owe no tax”.

The SET Tax would eliminate the dreaded AMT, multiple phase-out levels, credits (existing credits could be replaced by exclusions), and multiple filing statuses that add complexity and confusion to the Tax Code. The FAQ sheet for the proposal indicates that it “can be designed with a single filing status and still retain equity”.

So it appears we would have a Form 1040, possibly one page instead of two, Schedules B, C, D, E, and F to report net “realized” income, and a Schedule similar to Schedule A to identify the various allowable exclusions for individuals.

The short-form did not address the issues of FICA and Self-Employment taxes. I assume they would remain the same as under current law.

This is a very interesting alternative to the current tax system, especially considering this proposal was developed by CPAs. To be honest I like it. It certainly deserves some serious consideration.

Now this could truly be called “the mother of all tax reforms”.

What do you think?

TTFN

1 comment:

Anonymous said...

Simple Answer --- No. I don't trust any of the politicians. No sooner than a new law was on the books they would be looking to make exceptions. The KNOWN IS PREFERABLE TO THE UNKNOWN!!!!

Just put the patch in, index it to inflation and have No Expiration Date!!!!!

Separately, I have heard that Rangel wants to Double the Child Tax Credit as part of his overhaul supposedly to get rid of the AMT -- but really just a ruse to make other changes. I am a parent who never ever had a child tax credit while raising my 2 children. Now parents get $1,000 per child and Rangel would like to double it to $2,000 per child. I am completely against this. A family with 4 children would then have $8,000 in TAX CREDITS to apply their actual taxes due against. NO FAIR SAY I!!!!

While we are trying to figure out how to pay the inflated New York property taxes (now at more than 10% of income, gross or taxable for some of us) the young families will be sitting pretty with all their child tax credits, not to mention all the immigrants or illegal immigrants rushing to collect the newly found windfall.

When Bill Clinton was President he changed the law regarding the taxability of social security benefits from 50% taxable to now in some cases up to 85% taxable with no indexing the $44,000 couple amount for inflation.

We have nothing but Bait and Switch going on with our Congressional representatives. I am sick of them all!!!!!

God help those poor elderly people, those over 70, 80 or even 90.
In my opinion, Congress can't wait to pick their pockets plus those of any senior over 65 who thought about the future and saved only to have it taken away by these robbers!!!