It's tax season, which means the IRS is being cursed more than usual throughout America. There is a diary up right now about the ineptitude (or tone deafness at least) of the IRS. So, Senators Wyden and Gregg have introduced a bill to amend the tax code, the "Bipartisan Tax Fairness and Simplification Act of 2010". What does it do? Let's take a look.
First, it's important to note that we had major tax reforms in 1954, 1969, 1976, & 1986, but nothing since then. We've had cuts and raises, but no major changes to the tax code. Here is what the Wyden/Gregg plan would do:
Reduces the number of tax brackets for individuals from six to three: 15 percent, 25 percent and 35 percent. Eliminates the Alternative Minimum Tax.
Ensures no taxpayer pays a rate higher than 35 percent. Nearly tripples the standard tax deduction.
Consolidates the three existing types of IRAs into a new Retirement Savings Account and a new Lifetime Savings Account so that a married couple will be able to contribute up to $14,000 per year to tax-favored retirement and savings accounts.
Reduces the top corporate tax rate and replaces the existing 6 corporate rates and 8 brackets with a single flat rate of 24%. Allows small businesses with gross receipts of up to $1 million to expense all equipment and inventory costs in a single tax year.
Creates a new 35 percent exclusion and a progressive rate structure for
dividend and long-term capital gains income. Cuts the holding period to six months for the first $500,000 of a taxpayer’s capital gains income.
Cuts the value of inflation from a corporation’s interest deduction on debt. Ends a number of specialized tax breaks that favor one business sector or special interest group over another.
Repeals the rule that allows U.S. companies to defer taxes on their foreign income. The bill Requires banks to identify all individuals who benefit from foreign accounts and to withhold 30 percent of all withholdable income, such as interest, sent to beneficiaries that disguise their identities.
Legalize, regulate and tax Internet gaming.
That last one may seem out of place, but I put it because I think it's about damn time.
I personally think the highest tax rate, which they propose to be 35%, should be at least 45%, but they seem to do a good job of closing corporate loopholes and offshore tax breaks.
The 1040 would be reduced to a simple, 1 page form. Here's a sample (PDF FILE).
This seems like the type of bill the President would eagerly sign. It's bipartisan, and it reduces taxes on the middle class. That doesn't mean it will pass, or that it necessarily should. But it's something worth exploring.
Thanks to burrow owl, here's a link to the full text of the bill.