A bipartisan group charged by President George Bush with simplifying the tax code developed the plan. Bush wanted a proposal that eliminated some of the complicated twists and turns of the tax code, but was “revenue neutral” – in other words, didn’t raise or lower the total tax revenue.
The panel came up with numerous suggestions that will go to the U.S. Treasury for consideration in actually changing the tax code. The group’s work was to make recommendations, not policy.
Eliminate the AMT
The group suggested changes in home mortgage interest deductions, elimination of the dreaded alternative minimum tax, reducing the number of tax brackets and other changes.One of the changes that may affect investors directly is the way dividend income and capital gains are taxed. The panel offered two proposals. The first proposal suggested that dividends from domestic holdings would be tax-free.
The first 75 percent of capital gains would also be tax-free, while the remaining 25 percent would be taxed at your top or marginal tax rate. That would work out to a tax rate on capital gains of between 3.75 percent and 8.25 percent, depending on your tax bracket, according to CNN.
Dividend Income
The panel’s second proposal recommended that all interest, dividends and capital gains be taxed at 15 percent.Either one of these proposals could change some investment considerations because they both differ from the current arrangement.
However, like the other proposals for changing the tax code offered by the committee, it’s a long way from a good idea to a change in the tax code. The recommendations or some version of them has to be packaged and presented to Congress.
Before any changes even come to Congress, the special interest groups will be out in full force lobbying to protect or enhance their particular sacred cows.
