End preferential treatment of capital gains and dividends tax such income at the same rates as salaries.Permanently repeal the alternative minimum tax.Collapse the six tax brackets, which currently range from 10% to 35%, into three…12%, 22% and 28%.Many tax reform advocates want to keep the current income-based system, but make it less complex, reduce tax rates and collapse tax brackets, and curb many big-ticket tax breaks.įor example, the National Commission on Fiscal Responsibility and Reform set forth the following illustrative plan: If a higher tax rate is needed, it would be hard to win public support for the plan.Ĭhances of passage: Low, unless the tax rate can be kept below 20%.Ĭhanging the Mix by Reducing Tax Breaks and Lowering the Rate They also doubt a 17% or 19% tax rate would bring in as much revenue as the current income tax. Filing could be as easy as filling out a postcard.Ĭritics say the flat tax is regressive since all taxpayers, no matter their income, are taxed at the same rate. The alternative minimum tax and estate and gift tax would be repealed.īackers of the flat tax cite its simplicity: A single low rate on income and very few deductions. Business income, including that of corporations, would also be taxed at 17% (19% in the first two years). Taxpayers would get large standard deductions: $30,320 for couples, $19,350 for heads of household and $15,160 for individuals, plus an additional standard deduction of $6,530 for each dependent. Social Security, interest, dividends and capital gains would be tax exempt. Wages, retirement plan distributions and unemployment compensation would be taxed at 17%.19% in the first two tax years. This proposal calls for a single flat rate tax on income for all taxpayers.
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