Kowabunga

The Stribe is running a piece on a report that has been developed by President Bush's Tax Advisory Commission.

President Bush's tax advisory commission recommended two alternative plans Tuesday, both of which would limit or eliminate almost all existing tax deductions.

A second article provides a summary of how things might change under the proposals, including things like reducing the number of tax brackets from six to four, changing the limits on home mortgage interest deductions from $1, 000,000 to $244,000-312,000, and eliminating the marriage penalty on two worker families. It does not state if there would be changes in the rates people in each bracket pays (since the proposal would reduce the number of brackets, then there would be some changes, but what will they be?).

There are some ups and downs to the plans as revealed in the Stribe article, most notably the elimination of the Alternative Tax Method (a significant plus) and the reduced cap on which mortgages will qualify for an interest deduction or credit (big downer).

Okay, most people would say that anyone who can afford a million dollar mortgage doesn’t need a credit, however, in Silicon Valley, many middle income families are struggling to afford a home in a market where the median home price is over $750K, and mortgages to match, figure somewhere in the 4-500K range, if not higher. By reducing the cap, this will mean many people may end up being taxed out of their homes. Maybe they’ll leave California and cause the housing market to crash, leaving a lot of mortgage lenders on the hook with homes they can’t resell for enough to recap their losses. Unless, of course, the overall tax rates are reduced significantly to reduce the overall tax burden, then this would be a moot point.

The elimination of the ATM, on the other hand, is a darn good thing as many people get caught into this trap on stock swaps, and I have known several people who ended up owing the IRS more than the stocks were worth at the time the tax bill came do (the tax was set on the valuation at the time of the swap, then the price collapsed as the new company went bankrupt).

Some of the other changes may also be good. Hard to say until we have access to the report and a chance to read it.