First and foremost – the new Tax Code would not have any kind of “Alternative Minimum Tax”. There would be only one method of determining income tax liability. The dreaded AMT would be dead and buried – for good.
There would be no Adjustments to Income for –
Business Expenses of Reservists, Performing Artists, etc
Self-Employed Health Insurance
Student Loan Interest
Tuition and Fees
Domestic Production Activities
That is not to say that all of these items would no longer be deductible. Educator expenses, Business Expenses of Reservists, and Moving Expenses would be deductible under the category of Employee Business Expenses. The deduction for health and long-term care insurance premiums for self-employed taxpayers would be claimed directly on Schedule C or F.
Also gone for good are the following credits -
Retirement Savings Credit
Residential Energy Credit
Alternative Motor Vehicle Credit
Making Work Pay Credit (already gone)
Earned Income Credit
Additional Child Tax Credit
First-Time Homebuyer Credit (already gone)
And all other weird and sundry special interest business and personal credits
Now taking these benefits out of the Tax Code does not necessarily mean that the government will no longer provide benefits to encourage higher education, energy-efficient purchases, and to encourage individuals “on the tit” to work. As I have been saying for years, such government benefits should be administered as direct “point of purchase” payments or discounts paid out by the appropriate cabinet agency.
· When you buy a qualifying energy-efficient water heater or hybrid car you would get a “cash-for-clunkers-like” discount directly from the seller, who would be reimbursed directly by the government.
· Additional government grants would be given through the existing Student Financial Aid system, directly reducing tuition payments, again with the institution being reimbursed by the government.
· Incentives to work could be built in to the Aid to Families With Dependent Children program – such as a government reimbursement for certain payroll tax withholdings.
· If the government wants to give those with student loans a break it should just reduce the amount of interest on the loans, providing subsidy payments directly to banks.
In an earlier post in the series I mentioned that, as of this writing I have not decided if the new Code will have a special increased dependent exemption amount or a Dependent Credit. Whichever option I chose will replace the current Child Tax Credit.
There will be itemized deductions that also will not “make the cut”, but I will discuss these items in future posts.