Saturday, November 18, 2006

The democratic tax bill I'd love to see

This one is for you Bill, but I would love to see the Democrats ideal tax bills.

My principles of a Democratic tax bill is on three pillars:

  1. The tax must be progressive whereby top earners pay their "fair share".
  2. The tax must be simple.
  3. The tax must maximize tax relief for "working families".
Here's my stab at it. I'm only going to focus on individual taxes. So let's see:

  1. Two tax brackets: 20 & 40%. 20% up to 80,000/160,000 for single/married filing joint. 40% above.
  2. Income is income, regardless of the nature - interest, dividends, capital gains, benefits paid by employer, including social security.
  3. All itemized deductions are removed save charitable contributions, with the 30/50% AGI rule shelved. The other deductions allowed are IRA/Pension plan contributions.
  4. Bigger standard deduction and exemptions. Exemptions up to $5,000/head, indexed to inflation with no phase out. New standard deduction of $15,000/$30,000 for single married filing joint.
  5. No more AMT.
Here's the positives of this:
  1. Eliminate the different tax treatments of different types of income. A person with $100,000 of wages pays the same as one with $100,000 of dividends.
  2. Standard deduction for everyone ensures that people with different spending habits don't have different tax results. A renter is on the same level as a homeowner with a mortgage. A person in a low tax state is on the level with one in a high tax state.
  3. Helps "working families". My system means a family of four making $50,000 pays no Federal Income Tax. A single person making $20,000 pays no tax.
  4. Simple - 90% of the people can do their own taxes based on this simple formula.
Is it "revenue neutral" I don't know, but it certainly fairer than what we have right now.


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