Proposed Income Tax Plan; Home Owner & Buyer Angst
Every time a politician proposes something, the first thing that comes to my mind as an American, is "what's the catch?"
The level of income tax paid can affect a home owners ability to pay their mortgage. The level of income tax others pay may affect their opportunities with down payments, closing costs and future mortgage payments. This is one to keep an eye on and shout out about with your opinion.
And when I say overhaul, I mean overhaul... this plan is bold, and some are going to be grateful and some are going to hate it. In brief review, it would seem this is good for some, not so good for others depending on your level of income as the plan proposes to have three brackets instead of the seven current, a 10%, 25% and 35%, and taxing long term capital gains, and dividends as standard and usual income (I like that part) and exempting 40% of such income from any tax. Say what???
Chairman of the almighty House Ways & Means Committee, Republican Dave Camp of Michigan, one of two key figures in developing the plan, released an immensely exhaustive tax code overhaul plan three years in the making. The plan and goal is designed to simplify tax law and lower overall tax rates while staying "revenue-neutral". First, think of all the trees that might be saved! Too, Benjamin Franklin, a very wise historic figure once said, "The only way to a greater order, is through less regulation". On that note I agree.... and all of this sounds good at first to most folks, doesn't it? Again, it will depend on your personal circumstance, and something to despise for just about everyone.
I can tell you Realtors oppose this.
Let's take a closer look at "The Plan"
- Increases the standard deduction so that 95 % of tax payers will not need to itemize deductions
- Repeals the highly unpopular alternative minimum tax (AMT).
- Reduces the upper ceiling of corporate income tax rate to 25% from 35%, and phased in over 4 years, (supporting business is a good thing, ... mostly).
- To pay for lower overall tax rates and a larger standard deduction, many individual tax deductions and preferences are eliminated. For example, the plan repeals:
- All personal exemptions.
- Itemized deductions for items not reimbursed employee expenses and medical expenses.
- Deductions for personal casualty losses, contributions to medical savings accounts, moving expenses, alimony, and tax preparation fees.
- For those who itemize, the charitable deduction would be available only to the extent that charitable contributions exceeds 2 percent of adjusted gross income.
Businesses seem to benefit at first with lowered corporate income tax, yes, however, businesses are not going to be spared under the plan. In fact, they will no longer be able to claim accelerated deprecation to deduct the cost of business property, which can really impact smaller and medium businesses. The plan increases taxes on income earned by private equity managers and imposes a tax on the assets of the biggest banks and insurers. S corporation shareholders actively participating in the corporate biz would have to pay self-employment tax on 70% of their combined compensation and distributive share of dividends.
Now, I have no pity for top level management and boards who are salaried at a 1/2 million and have hundreds of thousands to millions in their 401k's and other investment vehicles, that will remain in the "tax heaven but what do you think they'll do if Uncle Sam's "revenue-mutt" (the IRS) takes a bite of their backside? They will roll the "grief", ahem... downhill; halts on pay raises, expense cutting all the way down to cutting jobs, smaller matches to retirement plans, etc... Not sure if three years was enough to work on it, but then again, you're talking about people that bounce checks a lot who's living is arguing, getting votes and simply keeping their station. Maybe they never really solve the problems... kinda like a lot of medicine treats the symptoms but never the disease... there's no money in cures, think about it.