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Debt panel suggests major tax changes

The preliminary report released today by the President's debt reduction panel already has accomplished a major feat. It's united much of Washington, D.C., against some of its key proposals.

I'm talking, of course, about recommendations by the chairmen of the National Commission on Fiscal Responsibility and Reform that Social Security and Medicare be cut.

The debate over what typically is an inviolable government benefits program (remember Dubya's failed attempt to privatize Social Security?) is going to rage for a bit.

So while folks are duking that out, how about you and I, tax geeks that we are, look at what commission chairmen Erskine Bowles, former Clinton White House chief of staff, and Alan Simpson, former GOP Senator from Wyoming, have to say about taxes.

The graphic below (or on page 24 if you're thumbing through the report) offers one of the panel's tax ideas: The Zero Plan, which would, in part, consolidate tax rates.

Debt-panel-tax-rates-chairmendraft-111010 Click image (or here) for a larger view.

The current six individual income tax brackets (or five if the Bush tax cuts expire) would become three and there would be one corporate tax rate.

Tax rate trade-off: All rates would be substantially lower. Of course, that could be done only if some tax breaks, such as those for mortgages or children, were sacrificed.

As you might expect, these kinds of trade-offs aren't going over too well either. Witness this statement issued by Bob Jones, chairman of the National Association of Home Builders (NAHB):

"We commend Chairmen Bowles and Simpson for their plan to put the nation on a sound fiscal course. However, for a battered housing industry, which is struggling with a 21% unemployment rate among construction workers, this is absolutely the worst time to be considering changes to the mortgage interest tax deduction. Tampering with the deduction would be a major setback for today's slowly emerging housing recovery. It would disrupt the plans of young households who are gathering their financial resources to purchase a home. And it would impose a substantial tax burden on existing home buyers, many of whom continue to stay current with their mortgage payments even as they struggle to make ends meet. Diminishing or ending the deduction would exert further downward pressure on home prices, leaving more home owners with mortgages larger than the value of their property and fueling even more foreclosures. It is absolutely clear that the mortgage interest deduction should not be on the table."

Other tax tweak options: The debt panel chairs also like the Gregg-Wyden tax overhaul proposal, which I blogged about earlier this year in Is it time for tax reform?

And then there's tax proposal number three, Tax Reform Trigger. This calls on Congress and Treasury to develop and enact comprehensive tax reform by end of 2012. If Washington, D.C., just can't get the job done, then there would be, among other things, across-the-board trimming (or "haircuts") of itemized deductions, the employer health exclusion and general business credits that would take effect in 2013.

After I finish giving the 50-page chairmen's draft a closer look, I likely will have some more comments. So will a lot of other folks, from Obama to those on Capitol Hill (and adjacent lobbying offices) to all of us taxpayers across the country.

You also can read my additional comments at my Bankrate Taxes Blog post on the panel's suggested tax changes.

You might like some of the report. You might hate some of it. But keep in mind that the proposals released today are just the thoughts of two guys.

The full and final report that is schedule to go to Congress on Dec. 1 must be approved by at least 14 of the panel's 18 members.

Who knows? Perhaps most of the other members are as upset with the Social Security and tax suggestions as a lot of other people are right now. When the points of view of those 16 other commission  members are taken into account, some of the recommendations might change ... or disappear.

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Congress should cut Foreign Aid, especially foreign aid to countries like Israel who take U.S. TaxPayer money and then spit in the face of our Vice-President Joe Biden, before cutting any domestic program.

According to one study, it cost U.S. TaxPayers $110 billion per year to educate, medicate and incarcerate illegal aliens. No Mas! No Mas! So all illegal aliens should be deported before a single dollar is cut from any domestic program.

Excess Social Security Payments have been and continue to be spent as part of the general budget to fund things like the War in Iraq and InState college tuition to illegal aliens. Before reducing Social Security benefits, Congress must pass a law that says that excees social security payments shall be placed in a separate interest bearing accout and not spent as part of the General Budget.

50 billion a year could be saved by closing most foreign military bases (WW11 is history).

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